CHAPTER 3

GLOBAL TRADING
ENVIRONMENT
 WORLD TRADE AND
PROTECTIONISM
• In economics, protectionism is the economic policy of
restraining trade between states (countries) through methods such as tariffs
on imported goods, restrictive quotas, and a variety of other government
regulations.

• Trade protectionism is a type of policy that limits unfair competition from

foreign industries.

• Under protectionism, the domestic industries are protected from the

competition of foreign goods.

• It's a politically motivated Defensive Measure.

• In the short run, it works. But it is very destructive in the long term.
 TYPES OF PROTECTIONISM (IMPORT)
 Tariffs: a tax or duty that raises the price of imported products and an
expansion in domestic supply. For example, until recently, Mexico imposed
a 150% tariff on Brazilian chicken. The United States has an 11% import
tariff on imports of bicycles from the UK.

 Quotas: these are quantitative (volume) limits on the level of imports

allowed or a limit to the value of imports permitted into a country in a
given time period. Until 2014, South Korea maintained strict quotas on
imported rice. It has now replaced an annual import quota with import
tariffs designed to protect South Korean rice farmers. Quotas do not
normally bring in any tax revenue for the government
 TYPES OF PROTECTIONISM (IMPORT)
 Voluntary Export Restraint: this is where two countries make an
agreement to limit the volume of their exports to one another over an
agreed time period. Sometimes this is enforced by a government.

 Financial protectionism: for example when a national government

instructs banks to give priority when making loans to domestic businesses.

 Domestic subsidies: government help (state aid) for domestic businesses

facing financial problems e.g. subsidies for car manufacturers or loss-
making airlines.

 Devaluation:Devaluation refers to the fall in value of home currency in

terms of other currencies, when the home currency is devaluated, the
imports automatically become dearer and therefore, they are discouraged.
 TYPES OF PROTECTIONISM (IMPORT)
 Exchange Control: Under this system, government holds monopoly on the
foreign exchange. Every importer, under this method, has to secure foreign
exchange from the government to make the payments for imports. The
government releases foreign exchange only for the imports which are made
either with the permission of the government or which are not against the
interest of home industries.

 Discriminatory Transport Charges: Sometimes the government imposes

discriminatory transport charges (different charges for different goods) on
the imports of commodities. It makes the imports of certain commodities
costlier in the home market which, in turn, diminishes their demand.
 TYPES OF PROTECTIONISM (IMPORT)
 License System: Under this system, the government issues license to the
importers authorizing them to import so much of the commodities from
abroad as mentioned in the license & No person other than authorized
licensee can import the commodity or no imports can be made of the
quantities more than those mentioned in the license.

 State Trading: State trading implies the taking over the entire forcing trade
by the government of the country. It make easier to control the imports of
the country by the government. This method also protects the home
industries.