International economics

Table of Contents

1. Topic pack - International economics - introduction
2. Section 3.1 International trade (notes)
   1. Reasons for trade - introduction
   2. Benefits of trade
   3. Absolute advantage
   4. Comparative advantage
   5. Absolute and comparative advantage (video)
   6. World Trade Organisation (WTO)
   7. The role of the WTO
   8. WTO background information
   9. Trade protection - introduction
   10. Introduction to trade policies (video)
   11. Types of protectionism
   12. Tariffs - case study
   13. Imposing a tariff - calculation
   14. Setting a quota - calculation
   15. Giving a subsidy - calculation
   16. Arguments for protectionism
   17. Arguments against protectionism
3. Section 3.1 International trade (questions)
4. Section 3.1 International trade - simulations and activities
5. Section 3.2 Exchange rates (notes)
6. Section 3.2 Exchange rates - questions
7. Section 3.2 Exchange rates - simulations and activities
8. Section 3.3 Balance of payments - notes
9. Section 3.3 Balance of payments - questions
10. Section 3.4 Economic integration - notes
11. Section 3.4 Economic integration - questions
12. Section 3.5 Terms of trade - notes
13. Section 3.5 Terms of trade - questions
14. Print View

Arguments for protectionism

Governments use the following arguments to justify protectionism:

• To safeguard domestic employment - protectionist policies reduce the level of imports and increase aggregate demand [AD = C + I + G + (X-M)], resulting in a higher level of national output and employment.
• To correct balance of payments disequilibrium - as imports are discouraged, and exports encouraged, the balance of payments improves.
• To prevent labour exploitation in developing economies - preventing import of goods produced by exploiting cheap labour in developing countries will prevent this labour exploitation. However, it might also reduce export income and job opportunities for some of the poorest economies in the world.
• To prevent dumping - which is where economies sell goods in overseas markets at a price below the cost of production. Domestic consumers pay more than those buying overseas. Such low prices are part of a policy to destroy rivals in export markets.
• To safeguard infant industries - The new industries need some protection from the power of already established competitors to be able to grow and achieve economies of scale.
• To enable a developing country to diversify - Many developing countries are heavily dependent on exports of primary commodities. This can leave them very exposed to changes in international commodity prices. If they want to diversify and develop new export revenue streams, they may need to protect these new industries from full exposure to international competition for a while.
• Source of government revenue - where protectionism takes the form of a tariff, this will also raise revenue for the government, like any other tax.
• To protect strategic industries - a particular product or industry might be of strategic importance to a country, e.g. agriculture or coal, and protectionism may be justified on the grounds that it is keeping alive an industry which plays a vital part in the economy.