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Summary - Unit 4 ECON4 - Economics: Protectionism and Trade
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Questions, summaries and diagrams on protectionism and the WTO.
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International TradeWTO
Explain the role of the World Trade Organisation (WTO)
Overall objective is universal free trade, making the world into one massive trade bloc
Advocates of comparative advantage
1. Host negotiations
2. Handle disputes
3. Issue sanctions
Explain how the WTO might conflict with trade blocs (15 marker)
Conflict
Bans existence of trade blocs like the EU because the WTO attempts to create one trade bloc
WTO against protectionism
Trade blocs are regional with a common external tariff
Complement
Negotiations made easier because only need to negotiate with one trade bloc representative
Trade blocs have same ideology of free trade
How has the reputation of the WTO changed in recent years.
1995-2013
Globalisation is booming and many countries are advocates of free trade
Support for WTO but limited WTO action
WTO is unsuccessful because they support developed countries with high technology
Anti WTO protests in Seattle, multiple failures
2013 – Bali package big breakthrough agricultural free trade from the EU
2016-2024
2016 – bad year for globalisation and free trade – Brexit and Trump’s presidency
Trump hugely undermined WTO – make America great again
WTO makes huge efforts for improvements but has less support
Protectionism – For each form of protectionism include the following:
, 1. Definition 2. Relevant diagram 3. Explanation of why a nation would impose the policy
(advantages for the nation) 4. Negative impact of the policy both for the nation and trade partners
(include other evaluation here as well). 5. Relevant examples from the course.
Tariff tax on imports
Highly likely to result in retaliation
Only work if the tariff is small and there is elasticity of supply and demand
US taxing Chinese steel imports 29% started trade war
Low consumer surplus, high producer surplus
Quota – physical restriction in the amount of imports
Less likely to result in a trade war if quota is set high – compared to tariff
Good for domestic firms – increase in supply and bigger increase in domestic demand
Imperfect information – setting quota too high makes it pointless
No tax revenue for government
Limits consumer choice for consumer and higher price – could be shortages created
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