Protectionism

Brazil informal economy

16% of GDP so acts as a constrain on growth because it restricts tax revenue so less funds for govt spending on edn, health etc.

Brazil - fall in global competitiveness index (business)

Falling because of high regulations and lack of investment in infrastructure - ease of doing business low e.g. 100 days to start a business. Denmark takes 1 week.

Analysis for how Brazil will benefit from removal of its protectionist policies. (trade liberalisation/globalisation)

Draw tariff diagram and explain how the removal of tariffs will lead to lower consumer surplus and a welfare gain. Lower prices will decrease inflationary pressures. This is because removing tariffs and quotas should help bring down the cost of many imports that provide the inputs for a good deal of Brazil's production of goods and services for both domestic consumption and export. This will result in a rightward shift of SRAS, raising real GDP and reducing the price level. This could address Brazil's lack of competitiveness and contribute to an economic recovery. In addition, removal of these restrictions is likely to lead to reciprocal removal of such tariffs etc. on Brazilian exports. Consequently, opening up larger markets from which the country can benefit. This will result in an increase in exports, a rightward shift of AD, higher real GDP. The combination of lower input costs and increased export sales potentially could bring down inflationary pressure and increase employment opportunities, helping to address Brazil's problem of stagflation.

Arguments for: Dumping

Dumping is a type of predatory pricing behaviour and a form of price discrimination. Goods are dumped when they are sold for export at less than their normal value. The normal value is usually defined as the price for the like goods in the exporter's home market. In the short term, consumers benefit from the lower prices of the foreign goods, but in the longer-term, persistent undercutting of domestic prices can force a domestic industry out of business and allow the foreign firm to establish itself as a monopoly. Once this is achieved the foreign owned monopoly is free to increase prices and exploit the consumer. Therefore protection, via tariffs on 'dumped' goods can be justified to prevent the long-term exploitation of the consumer.

Further benefits

Greater competition from imports --> firms are driven by the profit motive --> seek to cut costs and innovate to survive - BUT inefficient firms may close --> job losses --> could lead to regional/structure unemployment.

Regressive effect on the distribution of income:

Higher prices from tariffs hit those on lower incomes hardest, because the tariffs (e.g. on foodstuffs, tobacco, and clothing) fall on products that lower income families spend a higher share of their income. As steel is used in the production of many goods and services, tariffs are likely to increase prices for many g+s e.g. construction, cars.

Brazil example - evaluation

Increased spending education but return on human capital low (edn less effective) because low teacher salaries--> poor quality as pay doesn't attract best people.

Tariffs on solar panels examples

Justified because of dumping - will save some jobs BUT the majority of jobs in solar industry is in installation and cleaning so unintended consequence - jobs gained for a few producers will be lost in installing and cleaning firms be/c ss shifts to the left ---> movement up the dd curve --> less output --> less jobs. As solar energy is a merit good with external benefits --> increase in under - provision --> allocative inefficiency.

Protectionism

Protectionist policies are those which seek to restrain trade between countries through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow (according to proponents) fair competition between imports and goods and services produced domestically.

Fun example - tariff on Harley Davidson

Political point only - Harley Davidson a luxury so price inelastic so wealthy consumers will still buy so unlikely to hurt US too much.

In view of the economic problems facing Brazil, Evaluate the case for the removal of its protectionist policies. Intro

Problems - falling competitiveness, economic recession, rising unemployment and inflation (9%) (stagflation), informal economy 16% of GDP. Need to increase LRAS - ss-side policies. Protectionist policies aim to restrict imports e.g. tariffs, quotas, regulations

Arguments for

Protection of jobs in home industries and an improvement in a country's balance of payments.

In view of the economic problems facing Brazil, Evaluate the case for the removal of its protectionist policies. Evaluation

Protectionism can therefore be an ineffective and costly means of sustaining jobs. However, on their own, removal of trade restrictions will not be enough to solve the ss-side problems. Supply side policies will be needed to increase productivity.e.g Deregulation so that it is easier to start up a business so that job losses from inefficient domestic producers can be absorbed. Education will need to improve so that export opportunities can be harnessed by a sufficiently skilled labour force. Without ss-side reforms, jobs may be taken from cheaper imports and not replaced through greater export opportunities so unemployment/growth may be worse off. .

US- China trade wars - e.g. steel tariffs

To protect jobs against Chinese dumping/subsidies Steel has a big impact on regions - reduces structural unemployment and has positive multiplier effects. BUT tariff leads to higher prices --> derived dd --> inflationary consequences --> e.g. higher price of steel --> increases cost of prodn of cars --> draw ss and dd diagram shift left so higher price of cars --> less output --. less jobs. Evaluation - So more jobs in steel offset by job losses in other industries esp industries like cars which have a high multiplied effect.

To counteract Chinese subsidies/dumping

Unfair competition from Chinese subsidised steel leading to over-capacity --> prices driven down to uneconomic levels. If the US steel industry closes down, it would give China more monopoly power and, in the future, they could raise prices significantly. However, tariffs will still lead to the problem of retaliation and higher prices. Also firms that are protected from competition have little incentive to reduce their production costs. This can lead to X-inefficiency and higher average costs.

Arguments for :Infant industry argument

developing countries are justified to put tariffs on imports if they are seeking to develop new industries and diversify their economy. In particular, there is a justification for placing tariffs on industries where a country has a latent comparative advantage. This means that if they can develop infrastructure and economies of scale - they will have a comparative advantage. However, this may encourage firms to be inefficient from the start. If a developing industry has an effective protection from competition, it may lack the competitive pressures to be efficient and be ready to compete. The tariff protection can create a complacent feeling, which means firms are not ready when tariffs are reduced

Arguments against - Unintended consequences of retaliation.

e.g. China is the 2nd largest buyer of US pork. A tariff on pork will create more waste - China consumes most of the pigs feet and hocks. Pig farmers profits will fall. Steel jobs will be saved at the expense of farmers. Some US states will be hit hard as a large % of their exports will be affected by the Chinese tariffs --> negative multiplier effects.

tariff

tax on imported goods