Describes the different types of protectionism (e.g. tariffs and quotas) and how they impact businesses in the home country and businesses wanting to export to the country with the protectionism. Also explains trading blocs (e.g. Free Trade Areas) and how they impact businesses.
Theme 4 Topic 3
Protectionism and Trading Blocs
Protectionism
Protectionism – governments try to protect domestic industry such as by using tariffs or quotas on imports or
providing subsidies to domestic firms
Types of Protectionism
Tariffs – taxes placed on imports
Purpose of Tariffs:
A means of restricting trade from a particular country
Reducing the amount importation of specific goods and services
Impact of Tariffs:
What Impact Do They Have on The Companies
What Impact Do They Have on The Home Country
Wanting to Export into The Countries Who Use
Business?
Tariffs?
Increases the price of imported goods so Prices will have to increase, making
domestic producers are not forced to reduce products less competitive in comparison
their prices from increased competition to those in the countries who use the
Cost of raw materials could increase, which tariffs, meaning sales could decrease
would increase production costs
Quotas – physical limit on how many goods can be imported into a country
Purpose of Quotas:
To help regulate the volume of trade between them and other countries
Boost domestic production by restricting foreign competition
Impact of Quotas:
What Impact Do They Have on The Companies
What Impact Do They Have on The Home Country
Wanting to Export into The Countries Who Use
Business?
Quotas?
Reduced competition so higher sales Exports will be lower so sales in the countries
volume using the quota will be lower
Prices can be higher as there is less cheap Prices will have to be lower to remain
competition, leading to higher profit competitive, leading to lower profit margins
margins
Subsidies – payments made by the government to suppliers that reduce their costs, e.g. grants, interest free
loans or tax breaks
Purpose of Subsidies:
To encourage production and consumption in specific industries
To boost domestic production and manufacturing
Impact of Subsidies:
What Impact Do They Have on The Companies
What Impact Do They Have on The Home Country
Wanting to Export into The Countries Who Use
Business?
subsidies?
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