Macro Assignment

Question 2(a)

Protectionism can be defined as government actions and policies that restrict or restrain international trade, often done with the intent of protecting local businesses and jobs from foreign competition. Typical methods of protectionism are import tariffs, quotas, subsidies or tax cuts to local businesses and direct state intervention. (cambridge)

Government may use one or more of the tools to protect domestic market. Tariff is the customs duty imposed aiming to make an import products expensive hence reduce its demand (http://www.investorwords.com). In this way, the domestic product may enjoy a competitive price advantage.

Quotas, which is a quantitative or volume measures that limits on the level of imports allowed or a limit to the value of imports permitted into a country in a given time period. (http://ftamalaysia.org/) A government-imposed trade restriction that limits the number, or in certain cases the value, of goods and services that can be imported or exported during a particular time period. Quotas are used in international trade to help control the volume of trade between countries. They are sometimes imposed on specific goods and services to reduce imports, thereby increasing domestic production. In theory, this helps protect domestic production by restricting foreign competition. (http://www.investopedia.com/)

In addition, government may use non-Tariff Barriers (NTBs) refer to restrictions that result from prohibitions, conditions, or specific market requirements that makes importation or exportation of products difficult and/or costly. (http://www.tradebarriers.org/) Some examples of NTBs are import bans which banning import of certain products. Export subsidies is another common NTBs where the government subsidies local exporters to make their products more price competitive both at home and overseas.

In conclusion, protectionism is a government policy aiming at protecting local industries and employment over global and free...