Whats trade protectionism and its methods?

Answer 1

Protectionism is implemented to secure the domestic industries from international industries. Imported goods usually have high quality and are available at cheaper price then domestic goods. This increased the demand for imported goods and reduces the demand for the domestic goods. This leads to unemployment as some firms are not able to survive. This also means less revenue from the taxes for the government and low GDP of the country. To tackle this problem, the government take some measures and methods to protect the domestic industries in known as protectionism.

The methods are :

# Tariff: It means to implement tax on the importing of foreign goods, increasing their costs and hence decreasing there demand in the market. But it is only effective if the demand is elastic as in case of inelastic a rise in price will make a small decrease in demand. # Quota: It means banning or putting a limit to imports. No one is allowed to import more than the limit specified by the government. This creates scarcity in the market and hence increased the demand for the domestic products. This method is more better than Tariff as it does not depends on the demand being elastic or inelastic. In a light trade policy, the government increases the Tariff but decreases the quotas imposed. Government needs more accurate information on the consumption of goods and the total stocks available in the country. In this way, the government can decide on the right amount of quotas to be imposed. If this information is inaccurate, there might be surplus or shortage of goods in the country. # Ban: Also known as Embargoes. This means to completely ban the imports of some goods. Government can put ban on the goods that are in surplus as the domestic industries can fulfill the demand of the consumers. Some country's governments also use this to ban the imports of some harmful goods. # Subsidies: This is to provide grants or other benefits like tax reduction to local firms so that there cost of production reduces leading to decrease in the price of the local product against international product. Hence increasing the demand for the local goods. # To set certain packaging and quality standards: Some governments set certain packaging and quality standards for the country so to discourage imports and the high quality and packaging standards usually increase the cost of production of the product, resulting in decrease demand for imports. # Administrative problems: Some countries set complicated, expense and time consuming procedures to allow imports. Now imports have to use a lot of resources and finance to imports hence discouraging the imports # Exchange Control:Types of controls that governments put in place to ban or restrict the amount of foreign currency or local currency that is allowed to be traded or purchased. Common exchange controls include banning the use of foreign currency and restricting the amount of domestic currency that can be exchanged within the country.