4.3 Arguments For & Against Trade Protection (DP IB Economics: SL): Flashcards

The infant industry argument is that new firms should be protected because they are unlikely to succeed against global competition at start-up, with support removed once they are established.

A government protects against dumping because it is anti-competitive and can harm a country's domestic industries.

Strategic industries, such as energy, defence and agriculture, are essential to a nation's self-sufficiency and security, so relying on other countries for them creates vulnerabilities.

A current account deficit occurs when a country's imports exceed its exports, and protectionism aims to correct this imbalance.

Sunset industries are declining firms near the end of their life cycle that a government supports to limit the economic damage caused if they closed abruptly.

Protectionism reduces both the quantity and variety of goods and services available to consumers.

False.

Tariffs directly lead to higher prices, and protectionism more generally raises prices by reducing supply.

Retaliation occurs when foreign governments, whose producers are hurt by protectionism, respond with their own measures that further harm free trade.

Resource misallocation is the reduction in global welfare caused when protectionism shifts production away from more efficient foreign producers to less efficient domestic producers.

With less competition, domestic firms become less productively efficient and spend less on research, development and innovation.