2. Quotas
- A quota is a physical limit on imports e.g. in June 2022 the UK extended their quota on steel imports for a further two years in order to protect employment in the domestic steel industry
- This limit is usually set below the free market level of imports
- As cheaper imports are limited, a quota raises the market price
- As cheaper imports are limited a quota may create shortages
- Some domestic firms benefit as they are able to supply more due to the lower level of imports
- This may increase the level of employment for domestic firms
An Evaluation Of The Use of Quotas To Protect Domestic Firms
Stakeholder
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Explanation
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Domestic Producers
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- Increases their output
- Raises the selling price
- Increases their revenue
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Foreign Producers
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- Decreases their output
- Compared to a tariff, those firms who manage to export in the quota receive a higher price for their sales
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Consumers
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- Results in higher prices & less choice
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Government
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- They do not receive any tariff revenue (as there is no tariff)
- They may receive higher tax revenue at the end of the financial year when domestic firms pay their corporation tax
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Standards of living
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- Reduces for consumers as higher prices erode the purchasing power of their income
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Equality
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- Domestic firms can compete more equally
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3. Subsidies to Domestic Producers
- A subsidy lowers the cost of production for domestic firms
- They can increase output & lower prices
- With lower prices their goods/services are more competitive internationally
- The level of exports increases
- The increased output may result in increased domestic employment
An Evaluation Of The Use of Subsidies To Protect Domestic Firms
Stakeholder
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Explanation
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Domestic Producers
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- Decreases costs of production
- Increases output
- Increases international competitiveness
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Foreign Producers
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- Makes it harder for them to compete with domestic firms
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Consumers
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Government
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- This costs the government the amount of the subsidy
- There is an opportunity cost associated with every subsidy provided
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Standards of living
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- Improves for consumers as they benefit from lower prices - their income goes further
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Equality
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- Domestic firms can compete more equally
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4. Embargoes
- An embargo is a complete ban on trade with a certain country usually as the result of political fall out e.g. the USA ran an embargo for many decades on Cuban products
An Evaluation Of The Use of Embargoes To Protect Domestic Firms
Stakeholder
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Explanation
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Domestic Producers
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- Increases output due to less foreign competition
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Foreign Producers
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- They are unable to legally trade with the country running the embargo
- They lose sales & profits
- They may go out of business or need to reduce their number of workers
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Consumers
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- Prices will rise - & in some cases the product may no longer be available at all
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Government
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- The government has to spend money enforcing the embargo
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5. Administrative Barriers
- There are many strategies that can be used to create barriers to trade using less obvious methods than tariffs, quotas & subsidies
- Health & safety regulations e.g. in 2017 the EU put a new health regulation in place regarding the permitted level of aflotoxins in nuts. Aflotoxin levels are naturally higher in southern hemisphere countries & it effectively blocked the import of southern hemisphere nuts
- Product specifications e.g. Canada specified that all jam imported into Canada needed to be in a certain size of jar. Many countries do not usually manufacture jars in the required size
- Environmental regulations e.g. in November 2021 new regulations were put in place in the EU & the USA to limit the amount of imports of 'dirty steel' - predominantly this is steel produced using coal fired power stations which are prevalent in China
- Product labelling can be expensive for firms to apply & may limit their desire to sell into certain markets