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and a variety of other government regulations designed to allow ³Fair´ competition between imports and goods and services produced domestically.Concept of Protectionism Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods. restrictive quotas. .
REASONS FOR PROTECTIONISM Protects businesses from extra competition Helps new businesses to develop before they face competition Helps protect jobs Prevents foreign countries µdumping¶ lots of cheap imports into the country Prevents imports of harmful or desirable goods .
000 cars.TRADE BARRIERS / METHODS OF PROTECTIONISM TARIFFS or IMPORT DUTIES These are taxes on imported goods.g.REGULATIONS This includes laws and safety guidelines . They raise the price to customers and make them less attractive . 100.QUOTAS These are limits on the quantity of a product that can be imported into a country e.
General Agreement on Tariffs and Trade (GATT) The General Agreement on Tariffs and Trade (GATT) is an international agreement singed by the United States and 22 other countries in 1947 to promote the liberalization of foreign trade. .
dithers.Consequences of Protectionism Reduced supply of goods to buyers Price inflation Reduced variety. other countries can race ahead) .S. fewer choices available to buyers Reduced industrial competitiveness Various adverse unintended consequences (e.g. while the U..
clothing..60 billion in 2001).tariffs are common. the U.g. United Nations estimates that trade barriers in general cost developing economies over $100 billion in lost trading opportunities with developed countries every year. $1. . and agricultural products (e.Tariffs are Widespread Developing economies -.63 billion vs. recently collected more tariff revenue on shoes than on cars.tariffs still a factor mainly in textiles. The European Union applies tariffs of up to 236 percent on meat.S. and 17 percent on tennis shoes. Advanced economies -. 180 percent on cereals. $1.
in France the government provides large subsidies to Air France. or encouraging exports. government contracts at inflated prices. the national airline.Subsidies Government grants (monetary or other resources) to firms or industries. For example. provision of infrastructure. material inputs. tax breaks. services. Examples: cash disbursements. intended to ensure their survival by facilitating production at reduced prices. .
barley. the Common Agricultural Policy (CAP) is a system of subsidies that represents about 40 percent of the European Union's budget. In Europe. In Europe and the U. annual sales) and Shanghai Automotive ($12 b. milk. rice. receiving huge financial resources. governments provide agricultural subsidies to supplement the income of farmers and help manage the supply of agricultural commodities.Examples of Subsidies China. amounting to billions of euros annually. tobacco. The U. peanuts. sugar. cotton. annual sales). are in fact state enterprises partly owned by the Chinese government. . government grants subsidies for such commodities as wheat. and soybeans.S.Firms such as China Minmetals ($12 b..S.
Investment Incentives Similar to subsidies. NY competed to have Samsung Electronics build a semiconductor plant in their regions. Austin. Examples Hong Kong government put up most of the cash ± $1. transfer payments or tax concessions made directly to individual foreign firms to entice them to invest in the country. . Austin won.74 billion ± to build Hong Kong Disneyland. offering $225m in tax relief and other concessions to attract the $300m plant. TX and Albany. employs 1.000 workers.
Protectionism has declined. free-trade reforms. a large public sector. Poor economic performance due to high trade and investment barriers. privatization of state enterprises. Early 1990s ± markets opened to foreign trade and investment. state intervention in labor and financial markets. heavy regulation of business. .Market Liberalization in India Independence from Britain in 1947. Adopted quasi-socialist model of isolationism and strict government control. and central planning. but high tariffs (averaging 20%) and FDI limitations are still in place.
Market Liberalization in China 1949 ± Mao Tse Tung established a communist regime. very limited international trade. 1992 ± joined Asia-Pacific Economic Cooperation (APEC) group. . featuring centralized economic planning. agricultural sector. inefficient state-run industries. a free-trade organization. 2004 ± China¶s GDP was four times the level it was in 1978. 1980s ± began to liberalize economy. 2001 ± joined the WTO. and foreign trade exceeded $1 trillion. committed to reducing trade barriers and protecting intellectual property.
FREE TRADE Trade without any protectionist / trade barriers between countries .