Business Studies Unit 4 topic 4

Topic 4: Other considerations before trading internationally: trade barriers, social & cultural differences and ethical considerations

Protectionism - when government restricts trade with the rest of the world to protect local firms from foreign competitions; achieved by having trade barriers and discouraging free trade

Methods of protectionism:

1. Tariff barriers - indirect tax on imported goods; known as import or customs duty; foreign imports become more expensive so domestic consumers won’t buy them and therefore buy domestic products as they are relatively cheaper 
2. Non tariff barriers - measures by government to reduce trade without raising taxes on imports:

• Quotas - physical limit on the quantity of a good that can be imported
• Subsidies - giving financial support to domestic firms; reduces cost of domestic production and can make their products cheaper and attractive to locals
• Quality Standards - country can make entry quality standards high to restrict imports; those that don't meet the standards won’t be allowed 
• Red Tape - when government puts long and unnecessary procedures so foreign firms are discouraged to enter as it is time consuming and may be expensive 
• Import licensing - only allowing licensed products to be imported 
• Bans - prohibiting the import of certain goods; especially harmful ones: drugs, weapons etc

Advantages of Protectionism:

1. Protecting domestic industries - lower levels of unemployment
2. Protecting Infant Industries - gives chance to new industries to establish themselves before facing foreign competition 
3. Increase in Tax revenues - raising revenues from foreign firms; quotas increase profit too since domestic sales increase
4. Preventing Dumping - where foreign firms sell at very ow prices to force domestic producers out of competition 

Disadvantages of Protectionism: 

1. Higher Prices - tariffs and quotas make good more expensive for domestic consumers which leads to inflation and reduces real spending power
2. Political Problems - other countries are likely to retaliate with their own protectionist methods; extreme price hikes can cause demonstrations and civil unrest
3. Lack of Competitiveness - encourages…