Unit 4.3 - Arguments for and against trade control/protection

All 32 cards in this deck

Every term and definition, free to read. Hit study above to practice them as flashcards.

A situation in which firms lack the incentive to control their costs of production, because weak competition means they do not have to.

X-inefficiency

Actions taken by a country in response to trade restrictions imposed on it by other countries.

retaliation

An economic clash arising from protective measures implemented by nations against one another.

trade war

The capability of local businesses to successfully sell their goods in foreign markets.

export competitiveness

PC CRIME

An acronym that encapsulates the disadvantages of trade protection, highlighting issues such as misallocation of resources, retaliation from trading partners, increased costs, higher consumer prices, reduced choices, diminished efficiency incentives for domestic firms, and decreased export competitiveness.

multilateral retaliation

A more severe form of trade retaliation involving multiple countries imposing trade restrictions simultaneously. This often occurs within trading blocs, amplifying the economic conflict and potentially leading to widespread losses across various industries.

offshoring

The practice of relocating production or services to another country, often to reduce costs. Offshoring can occur as a response to increased production costs domestically due to trade protection measures, impacting economic growth and job availability in the home country.

unilateral retaliation

A form of trade retaliation where one country imposes trade restrictions in response to sanctions from another country. This can lead to escalating trade conflicts, potentially harming both economies involved if not managed carefully.

A comprehensive financial statement detailing a nation's transactions with other countries, typically over a year.

balance of payments

A low-income nation that encounters significant structural obstacles to achieving sustainable economic progress.

economically least developed country (ELDC)

A situation where outflows from an account surpass inflows, indicating higher import spending than export earnings.

Current account deficit

New or unestablished sectors that may gain a comparative advantage but currently struggle against foreign competition.

infant industries

The practice of selling goods abroad at prices lower than their production costs.

dumping

The use of barriers to international commerce to protect a domestic economy from excessive foreign competition.

trade protection

anti-dumping

Measures to prevent foreign firms from selling products at prices lower than production costs, which can harm local businesses by flooding the market.

balance of payments

A financial record of a country's transactions with the rest of the world, including trade in goods and services, which can indicate economic health.

environmental standards

Regulations aimed at protecting the environment that may lead governments to impose tariffs or quotas on imported goods that do not meet these standards.

health and safety

A reason for trade protection, where governments impose restrictions on imports that do not meet domestic health and safety standards. This ensures that goods entering the economy, like food and medicines, are safe for consumers, reflecting varying standards across different economies.

health and safety standards

Regulations that ensure imported goods meet specific safety criteria; if they do not, governments may impose trade protection measures to safeguard consumers.

infant industries (sunrise industries)

New or unestablished industries that require government protection to compete with foreign firms, as they have potential for comparative advantage but are currently underdeveloped.

international competitiveness

The ability of a country to compete successfully in the global market, influenced by factors like productivity and trade barriers.

jobs protection

A rationale for trade protection aimed at preserving domestic employment by shielding local industries from foreign competition. This argument emphasizes the importance of maintaining jobs in vulnerable sectors, although it is not explicitly detailed in the chapter.

national security

A government argument for trade protection, asserting that essential industries must remain self-sufficient to ensure national interests during crises, such as wars or trade conflicts. This self-sufficiency is crucial to avoid reliance on foreign markets, which could be cut off in times of conflict.

openness to trade

The extent to which a country trades with the rest of the world. Greater openness raises economic growth, while protection contradicts the law of comparative advantage and makes consumers in ELDCs pay more for goods they need.

price elasticity of demand

A measure of how much the quantity demanded of a good responds to changes in price, which affects how tariffs adjust market conditions.

sanctions

Measures imposed by governments to restrict trade with specific countries, often for national security reasons, to ensure self-sufficiency in essential industries during crises.

secondary industry

A sector of the economy focused on manufacturing and processing, which ELDCs aim to develop through trade protection. By diversifying away from primary goods, these economies seek to establish a robust secondary industry, often supported by tariffs or quotas on imports.

unfair competition

An argument for trade protection based on the notion that not all firms operate under the same regulations. Domestic firms may face disadvantages due to foreign competitors benefiting from lower production costs or subsidies, leading to calls for protective measures.

A reduction in the variety of products available to consumers, frequently mentioned as a disadvantage of protectionist measures.

less choice

An increase in the amount consumers must pay for goods and services domestically, often cited as a drawback of protectionist policies.

higher prices

An inefficient distribution of inputs that leads to suboptimal production, often mentioned as a downside of trade restrictions.

misallocation of resources

World Trade Organization (WTO)

An international organization that regulates and promotes global trade. The WTO can impose sanctions on countries that engage in excessive trade protection, which may lead to inefficiencies and retaliatory measures, affecting both domestic and international markets.