Evaluate the case for and against protectionism.
Protectionism is an economic policy which restricts trade in goods and services between countries. This can be done by using a tariff, which is a tax on imports, or by using non tariff boundaries. These include a quota, which is a quantitative limit on the amount of imports allowed, or even an embargo, which is a total ban on imported goods. Additionally, the government subsidises firms who export large quantities of goods and services, as this encourages domestic production. The government may also issue import licences to importers whose imports will eventually become output, for example firms who import raw materials to be made into products. Some countries form VERs (Voluntary Export Restraints), where two countries make an agreement to limit the volume of their exports to one another over an agreed period of time. Also, governments may manipulate the currency, for example by depreciating the value of the pound against the euro, which would make it more expensive for UK households and firms to trade with countries in the euro zone.
Some countries consider free trade beneficial in the long run as it leads countries to become specialised and allows less economically developed countries to develop. However, other countries do not benefit from free trade as they are not internationally competitive; therefore they decide to introduce protectionist measures to prevent foreign competition from reducing domestic output. In this case there are some economic justifications for protectionism. Firstly, protectionism can be used to stop dumping. Dumping refers to foreign producers exporting goods at a lower price than it charges in its own country or at a lower price than the costs of production. This is illegal under World Trade Organisation regulations; however it is difficult to provide evidence against firms located in countries where production costs are low. Anti-dumping measures, which increase the...
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