Which is an example of a government policy that protects domestic producers against international competition quizlet?

Tariffs are taxes on imports. They effectively raise the prices of those imports, providing an edge to domestic companies in the same markets. Governments usually impose tariffs to help domestic companies, or sometimes to punish foreign competitors for unfair trading practices. However, tariffs can also have harmful consequences for domestic companies, especially ones in related industries, as well as consumers.

Understanding Tariffs

Tariffs are paid by importing businesses to their own government, with most costs passed on to consumers of those goods or services somewhere down the line. Tariffs are not paid by foreign companies that produced the goods or the governments of their home countries. Tariffs are usually used to protect struggling domestic industries against foreign competition or unfair practices such as dumping and foreign government subsidies.

There are two basic types of tariff: an ad valorem tax and a specific tariff. An ad valorem tax, the most common type, is levied as a percentage of the value of the good or service. A specific tariff sets a fixed fee by weight or number of items.

Key Takeaways

• Tariffs are a tax on imports paid by importing companies in the country that imposed the tax. The cost is usually passed on to consumers.
• Tariffs are meant to protect domestic industries by raising prices on their competitors' products.
• However, tariffs can also hurt domestic companies in related industries while raising prices for consumers.
• Tariffs can also erode competitiveness in the protected industries.

The Declining Use of Tariffs

Most economists believe tariffs hinder trade and economic growth while raising prices for consumers in tariff-implementing countries. This is why their use has fallen dramatically since World War II. The average level of tariffs on industrial goods has fallen from about 40% at the end of the war to about 2% today.

Still, most countries maintain at least small tariffs on some goods, especially ones of special domestic importance. The U.S., for example, still keeps a tariff of 25% on light pickup trucks, while the European Union maintains a 10% import tax on cars from the U.S. and other countries.

Steel and the Ripple Effects of Tariffs

Ex-President Donald Trump's steel tariffs illustrate one-way tariffs can be harmful as well as helpful. The U.S. steel industry has for years suffered from unfair trading practices overseas, particularly government subsidies that enabled Chinese producers to dump steel at low prices. In 2018, Trump imposed tariffs of 25% on steel imports in an effort to protect the domestic industry, including factory jobs in important "rust belt" swing states such as Pennsylvania.

While those tariffs have helped U.S. steelmakers, they have forced many U.S. companies that need steel for their products—especially automakers—to pay higher prices. This, in turn, can lead to higher prices for those downstream products and threaten jobs in downstream industries. As of May 2021, there were approximately 69,000 U.S. steelworkers.

Tariffs and Higher Prices for Consumers

Trump's washing machine tariffs show how import taxes can raise consumer prices—and not just on the targeted imports. Research by the University of Chicago and the U.S. Federal Reserve found that while the washing machine tariffs brought in $82 million a year to the U.S. Treasury, the cost to U.S. consumers was $1.5 billion a year. That's because U.S. producers raised their prices on washing machines and a range of other goods.

The washing machine tariffs helped create about 1,800 manufacturing jobs, the Fed concluded, but the cost to the U.S. as a whole was about $817,000 per job.

The Bottom Line on Tariffs

As illustrated above, tariffs often end up hurting other domestic companies in related industries as well as consumers. Yet many economists also argue that they often protect weak companies that should be allowed to fail, and over the longer term they erode the competitiveness of viable companies because those companies aren't forced to compete on an even playing field with foreign firms.

What Is Protectionism?

Protectionism refers to government policies that restrict international trade to help domestic industries. Protectionist policies are usually implemented with the goal to improve economic activity within a domestic economy but can also be implemented for safety or quality concerns.

Key Takeaways

• Protectionist policies place specific restrictions on international trade for the benefit of a domestic economy.
• Protectionist policies typically seek to improve economic activity but may also be the result of safety or quality concerns.
• The value of protectionism is a subject of debate among economists and policymakers.
• Tariffs, import quotas, product standards, and subsidies are some of the primary policy tools a government can use in enacting protectionist policies.

Protectionism

Understanding Protectionism

Protectionist policies are typically focused on imports but may also involve other aspects of international trade such as product standards and government subsidies. The merits of protectionism are the subject of fierce debate.

Critics argue that over the long term, protectionism often hurts the people and entities it is intended to protect by slowing economic growth and increasing price inflation, making free trade a better alternative. Proponents of protectionism argue that the policies can help to create domestic jobs, increase gross domestic product (GDP), and make a domestic economy more competitive globally.

Types of Protectionist Tools

Tariffs

Import tariffs are one of the top tools a government uses when seeking to enact protectionist policies. There are three main import tariff concepts that can be theorized for protective measures. In general, all forms of import tariffs are charged to the importing country and documented at government customs. Import tariffs raise the price of imports for a country.

Scientific tariffs are import tariffs imposed on an item-by-item basis, raising the price of goods for the importer and passing on higher prices to the end buyer. Peril point import tariffs are focused on a specific industry.

These tariffs involve the calculation of the levels at which point tariff decreases or increases would cause significant harm to an industry overall, potentially leading to the jeopardy of closure due to an inability to compete. Retaliatory tariffs are tariffs enacted primarily as a response to excessive duties being charged by trading partners.

Import Quotas

Import quotas are nontariff barriers that are put in place to limit the number of products that can be imported over a set period of time. The purpose of quotas is to limit the supply of specified products provided by an exporter to an importer. This is typically a less drastic action that has a marginal effect on prices and leads to higher demand for domestic businesses to cover the shortfall.

Quotas may also be put in place to prevent dumping, which occurs when foreign producers export products at prices lower than production costs. An embargo, in which the importation of designated products is completely prohibited, is the most severe type of quota.

Product Standards

Product safety and low-quality products or materials are typically top concerns when enacting product standards. Product standard protectionism can be a barrier that limits imports based on a country’s internal controls.

Some countries may have lower regulatory standards in the areas of food preparation, intellectual property enforcement, or materials production. This can lead to a product standard requirement or a blockage of certain imports due to regulatory enforcement. Overall, restricting imports through the implementation of product standards can often lead to a higher volume of production domestically.

For one example, consider French cheeses made with raw instead of pasteurized milk, which must be aged at least 60 days prior to being imported to the U.S. Because the process for producing many French kinds of cheese often involves aging of 50 days or fewer, some of the most popular French cheeses are banned from the U.S., providing an advantage for U.S. producers.

Government Subsidies

Government subsidies can come in various forms. Generally, they may be direct or indirect. Direct subsidies provide businesses with cash payments. Indirect subsidies come in the form of special savings such as interest-free loans and tax breaks.

When exploring subsidies, government officials may choose to provide direct or indirect subsidies in the areas of production, employment, tax, property, and more.

When seeking to boost a country’s balance of trade, a country might also choose to offer subsidies to businesses for exports. Export subsidies provide an incentive for domestic businesses to expand globally by increasing their exports internationally.

What Are Examples of Protectionism?

Common examples of protectionism, or tools that are used to implement a policy of protectionism include tariffs, quotas, and subsidies. All of these tools are meant to promote domestic companies by making foreign goods more expensive or scarce.

Is Protectionism Left-Wing or Right-Wing Politics?

Traditionally, protectionism is a left-wing policy. Right-wing politics generally support free trade, which is the opposite of a protectionist stance. Left-wing politics support economic populism, of which protectionism is a part.

What Are the Arguments for Protectionism?

Lawmakers that favor protectionist trade policies believe that they protect jobs at home, help support and grow small companies and industries, and provide a layer of security to the nation.

Which are some ways in which governments can protect local domestic producers from international competition?

What is considered the most common political argument for government intervention in foreign trade?

Why do countries impose tariffs quizlet?

Which of the following requires that some specific fraction of a good must be produced domestically?