Economic Management

1. Define Protectionism
Protectionism refers to measures used by the government of a country to restrict the free
movement of goods and services among countries. The main aim is to help local producers
develop. The government feels that they may not be able to survive foreign competition.
Protectionism is adopted even by developed countries.

Reasons for Protecting Home Industries:

- Establishing Infant Industries: Infant Industries are extremely young industries which cannot
compete with foreign competition until sufficient time has elapsed for the industry to
mature. It is necessary to protect them in order for them to grow and achieve economies of
scale which will then allow them to compete with already established foreign industries.
- To Protect Against Dumping – Dumping refers to cases where foreign produced goods are
sold in the local market below the average cost of production, with the aim of taking the
market away from local producers.
- Strategy: This is because reliance on foreign countries for essential commodities such as
military or national defense equipment puts a country at risk that such goods may not be
available during times of war.
- Protection of Domestic Jobs: It is argued that domestic firms will produce the goods that
otherwise would have been imported if foreign goods are kept out of the domestic
economy. This therefore, encourages greater production and thus creates employment in
the domestic economy.
- Correcting Current Account Deficits: These protectionist measures have the effect of
reducing imports on both goods and services which can help to eliminate any deficit in the
currency account of the balance of payments.

2. Define Tariff and Examples of Non-Tariff Barriers

Taxes on imported goods which are used to restrict imports and raise revenue for the
government. This is to raise the general price of imported goods and make them less attractive
so consumers can buy locally produced goods. In addition to improving the deficit in the balance
of payments, domestic producers would benefit from increased business.

Examples of Non-Tariff Barriers:

- Quotas: Restriction on the number of goods imported into a country to protect the domestic
markets for certain goods and services. This encouraged locally produced substitutes.
- Embargoes: Restriction on the total ban of the import of a product.
- Excessive Documentation: Imports may have to fulfil excessive documentation and
clearance procedures before the goods can be unloaded from the cargo ship. Such
procedures discourage import of goods in the country.

3. Define Preferential Tariffs

 A tariff schedule under which one or more nations are given lower rates or other advantages
over others to import goods into the country. These agreements are reciprocal meaning all
parties agree to give each other the benefits of lower taxes.

4. Define Trade Liberalization

Trade liberalization is the removal or reduction of restrictions or barriers on the free exchange
of goods between nations. These barriers include tariffs, such as duties and surcharges, and
nontariff barriers, such as licensing rules and quotas.

5. Globalization
Globalization refers to the increasing level of economic interdependence of countries
throughout the world. Globalization means different countries depend on each other for supply
of goods and services.
Globalization is the process by which businesses or other organizations develop international
influence or start operating on an international scale.

Factors Facilitating Globalization:

- Reduced Cost of Transportation between Countries: Improved efficiency in air and sea
freights has made it cheaper to transport products to different countries.
- Improvement in Communication: Easy and low-cost communication between countries via
telephone and the Internet has increased the level of business that take place between
countries.
- Reduction in Barriers to International Trade: Countries throughout the world have
embarked on the reduction and total removal of protectionist measures and promotion of
free trade. These initiatives have been guided by the World Trade Organization and
protectionist policies also applies to preferential trading agreements between countries.
- Free movement of Labour and Capital amongst Countries: More workers are able to move
to a foreign country for employment than in the past. Investors are also able to invest
money in foreign countries. For instance, investors in New York or London can make
investments in Trinidad or any other country.

Positive Effects of Globalization:

- Access to Foreign Goods and Services
- Access to Foreign Markets
- Access to Finance and Capital
- Access to Foreign Technology
- Increase in Tourism
- Private Transfers