Question

Discuss four protectionist measures. In general, what are the advantages and disadvantages of each measure.

Answer 1

Protectionist policies are policies which restrict the international trade to support domestic industries. There are three main measures that are primarly used around the world,

- Tarriffs, tarriffs are imposed on imports on the imports to increase their price and hence, decrease their demand in the country. Its advantage is that the increase in price of imported goods increases the demand for domestic good helping the domestic industries to grow. Its disadvantages are first, that it leads to increase in prices of goods for the domestic consumers causing deadweight losses. Second, the exporting country may retaliate with a tarriff hurting the exporters of the domestic country also

- Import quotas, it is the policy of imposing cap on quantity of imports to control the trade dedicits. Its advantage is that it keeps the value of imports unchanged even when demand for import increases leading to foriegn exchange savings. Its disadvantage is that quota works on licensing which means that it may lead to growth of monopolies and thus, fall in consumer welfare

-Export subsidies, it is a aide to the domestic exporters by the government to reduce their costs so that they can u dercut foreign competition. Its advantage is the donestic producers’ profit increases as they now get world price plus the subsidy, so, this may incentivise them to increase production, causing a possibility of economies of scale. Its disadvantage is that the businesses may become overreliant on the aide and don’t work towards increasing their production efficiency.

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