Lecture notes 3.1.4 Trade policy and trade negotiations

3.1.4 Trade policy and trade negotiations



Top protectionist countries

 USA
 India
 Russia



Protectionism

 When a country takes action to protect its own industries by restricting trade with other
countries
 Countries have a comparative advantage
 Strong reasons for economic trade to occur
 Developed and developing nations benefit in diverse ways or not at all

Methods of Trade protection

 Smoot-Hawley Tariff of 1930
o Designed to protect farmers from agricultural imports from Europe
 Government subsidizes local industries
o That allows producers to lower the price3 of local goods and services.
 Impose quotas on imported goods
o No matter how low a foreign country sets the price through subsidies it cannot ship
more goods
 Deliberate attempt by country to lower currency value
o Making exports cheaper and more competitive
o China PEG’s its currency
 What Is the health of the Chinese currency?
o Chinese Yuan 0.12= £1

Dumping

 Overproduction in developed countries may be released to developing countries' markets.
 Undercuts domestic prices and producers
 May force them out of the market

Motivations for Protectionism

 Response to import dumping
 Response to chronic trade gap/ deficits
 Employee protection
 Protect infant sectors
 Protect key industries
 Raise revenues for government with budget deficits