FREE TRADE
What is defined as ‘free trade’?
Free trade means removing or lowering trade barriers that restrict other countries goods and services coming into their countries.
What are protectionist measures aimed at?
Protectionist measures are aimed at reducing the level of imports, either because of the ‘damage’ they cause to domestic industries, or because of their adverse effects on the balance of payments.
What is a tariff?
A tariff is a tax levied on imported goods, and is also a source of revenue for the government
What is dumping?
Dumping occurs where a good is sold in an overseas market at a price below the real cost of production.
Free trade
Свобода торговли; duties and taxes are the most obvious barrier to free trade.
How do governments open markets?
Many governments have a policy of opening markets, removing or lowering trade barriers.
What is the effect of tariffs?
A tariff is a tax levied on imported goods, usually raising the price and discouraging their purchase.
Name some non-tariff barriers.
Quotas, Voluntary Export Restraints (VERs), exchange controls, and health and safety standards.
What is retaliation?
Retaliation measures are taken by countries in response to trade actions by others.
Protectionism
Протекционизм; measures to reduce imports to protect domestic industries.
Which theory gave impetus to free trade?
Free trade was given impetus by ‘The Theory of Comparative Advantage’, outlined by Ricardo.
How can protectionism distort trade?
Protectionist measures may distort the comparative cost ratios, discouraging domestic production of goods that could have been imported cheaper.
What is a quota?
A quota is a physical limit on the amount of an imported good that may be sold in a country in a given period.
Why use selective protection?
To prevent dumping, protect infant industries, protect strategically important industries, and maintain employment.
Retaliation
Ответные меры; the EU turned to retaliation measures in response.
How does comparative advantage work according to Ricardo?
Each country specializes in goods which it could produce most efficiently, even if another country is more efficient in all goods.
What is the “infant industry” argument?
An infant industry may have a high cost structure and needs protection to compete with established overseas industries
What are Voluntary Export Restraints (VERs)?
VERs are arrangements by exporters to limit the quantity of a specific product to a particular market.
How do exchange controls limit imports?
By limiting the availability of foreign currencies and curtailing excessive imports.
Dumping
Демпинг; selling below cost to drive competition out of business.
What does total world output depend on in free trade?
Total world output rises above the level it would otherwise be, with benefits shared via trade between countries.
How does protectionism affect international specialization?
Protectionist measures are likely to reduce international specialization and lead to less efficient allocation of world resources.
How can subsidies act as protectionist measures?
Subsidies improve domestic producers’ competitiveness in home and world markets.
What can happen if selective protection isn’t careful?
It may disrupt efficient allocation of resources and reduce overall economic efficiency.
“national champion”?
A domestic industry competitive on the world market