<6.2 GLOBALISATION, FREE TRADE & PROTECTIONISM> 

"Not anymore; thanks to 'CONTAINERIZATION,' the average price of transportation has fallen dramatically, as containers enable much more to be carried on ships, trains, and planes, lowering average transportation costs for the consumers."

"...the answer is 'yes'; most countries use some form of protectionist policy, such as a tariff (tax on imports), to help 'protect' domestic producers from foreign competitors. However, the CREATION OF MORE AND MORE FREE-TRADE ZONES means these 'barriers to trade' such as tariffs are gradually being reduced or removed, which ultimately lowers the price of exports, making them more attractive to buy."

• • Producing in countries where their products are sold rather than exporting to those countries will REDUCE THE MNCs’ TRANSPORTATION COSTS.

Being close to their customer base will enable them to keep in RESPOND QUICKLY TO ANY CHANGES IN TASTES & PREFERENCES.

• • Producing in countries where their products are sold will enable them to AVOID RESTRICTIONS ON IMPORTS, such as TARIFFS and QUOTAS.

• • Producing in countries where LABOUR and RAW MATERIALS are CHEAPER will allow them to HAVE LOWER COSTS.

They may also RECEIVE GRANTS from the governments of the countries in which they set up as they are in high demand.

READ the following parliamentary speech by Prime minister Modi exclaiming the merits to India of the proposed building of a TESLA production plant. COPY & PASTE it into your google doc and HIGHLIGHT/UNDERLINE all the BENEFITS that you can find and EXTRACT them into a LIST: 

• • "The potential establishment of a Tesla production facility in India presents a transformative opportunity for our nation's economy. One of the most immediate benefits would be the significant increase in employment opportunities. This endeavor would create a multitude of jobs across various skill levels, ranging from assembly line workers to engineers, thereby reducing unemployment and enhancing the livelihoods of our citizens. Furthermore, the operation of a Tesla facility would substantially boost industrial output, contributing to the growth of our gross domestic product (GDP). This increased economic activity would not only elevate India's standing on the global stage but also foster inclusive growth by creating a ripple effect of economic prosperity. Moreover, the tax revenue generated from Tesla's operations would serve as a vital source of funding for improving the provision of merit goods such as education and healthcare. These funds can be channeled towards enhancing access to quality education and healthcare services for all our citizens, thereby promoting human capital development and ensuring a healthier, more educated workforce. The introduction of Tesla's cutting-edge technologies and innovative management ideas would catalyze a wave of technological advancement across various industries in India. Domestic firms would have the opportunity to learn from Tesla's expertise and incorporate these advancements into their own operations, thereby strengthening our industrial base and diversifying into new sunrise industries. Finally, as a condition of investment, Tesla would be required to develop and build new infrastructure that benefits not only their operations but also the broader domestic industries. This could include the construction of new airports, road and rail networks, as well as schools and hospitals. By investing in such critical infrastructure, Tesla would contribute to the overall development of our nation, facilitating smoother transportation and providing essential social services to our citizens"

Now imagine that you are opposing the investment by TESLA, and you need to find some counterarguments for the points highlighted by PM Modi in task 1. as well as Make a any others you can think about drawing on the 'NEGATIVE' dropdown above.

FREE TRADE occurs when there are NO RESTRICTIONS on the products bought by firms and consumers from abroad or products sold by firms to other countries and no imposition of special taxes called 'TARIFFS'.

"...The reason is they were upset that the removal of the barriers would mean increased domestic competition, forcing some to either improve efficiency or leave the industry."

Countries may NEED A NUMBER OF NATURAL RESOURCES OR CAPITAL GOODS that are NOT AVAILABLE DOMESTICALLY. Trade allows countries to import inputs they need for domestic production.

PROTECTIONISM is the shielding of the country’s industries from the competition posed by other countries’ industries and hence involves restriction of free trade. 

QUOTAS are PHYSICAL LIMITS ON THE QUANTITY OF IMPORTED GOODS, which is again a form of 'PROTECTIONISM,' as there are fewer imports for domestic firms to compete against.

An INFANT INDUSTRY is a NEW DOMESTIC INDUSTRY that has not had time to establish itself and achieve efficiencies in production, and therefore CAN'T COMPETE WITH THE ALREADY WELL-ESTABLISHED COMPETITORS FROM ABROAD WHICH HAVE MUCH LOWER COSTS due to ECONOMIES OF SCALE. 

Therefore, for the infant industry to stand a chance it must also achieve economies of scale and so in the mean time NEEDS PROTECTION FROM IMPORTS until it grows to a size where protection is no longer needed.

DUMPING refers to the practice of SELLING A GOOD IN INTERNATIONAL MARKETS AT  AN ARTIFICIALLY LOW PRICE, due to HELP FROM GOVERNMNET EXPORT SUBSIDIES. 

Dumping is considered to be an UNFAIR TRADE PRACTICE, and is ILLEGAL according to the WTO, therefor, if a country suspects that a trading partner is practising dumping, it should have the right to impose tariffs or quotas in order to limit imports of the subsidised, or dumped good.

HIGHER PRICES: When the tariffs, quotas, etc are imposed the price of all imported goods will rise, meaning that domestic consumers will have to pay more for these goods or switch to slightly cheaper domestic products, either way, they will be spending more. on these goods than before Alternatively, they will just have to go without.

LESS CHOICE: As the prices of imports go up, many of the importers may decide not to sell in the country and this will reduce the choices available to consumers.

DOMESTIC PRODUCERS USING IMPORTED INPUTS: Domestically produced goods that use imported raw materials will see their costs of production rise, which means they will have to raise their prices, which makes them less competitive both domestically and internationally (if they are exporters) and this will lower the quantity demanded.

DOMESTIC UNEMPLOYMENT MAY RISE: As domestic exporting firms that use imported raw materials become uncompetitive on the world market, as well as the fact that the governments of those countries whose firms are being protected against, may RETALIATE, by imposing barriers of their own which will reduce the quantity demanded of domestic export producers, the likelihood of jobs being lost and domestic unemployment rising is high.

TARIFF REVENUE WILL INCREASE: In the case of tariffs the government will receive these funds and can use them to fund merit good provision such as HEALTHCARE and EDUCATION services, however as mentioned if the protectionism results in greater unemployment then the government will need to spend more of these funds on welfare programmes such as unemployment benefits, thus countering any gains.

INEFFICIENCY INCREASES: The idea of INTERNATIONAL SPECIALISATION is based on the premise that countries will specialise in the production of the good or service that they can make at the lowest relative cost, which results in the most productive nation specialising and trading their surplus, however protectionism will often result in MORE OUTPUT BEING PRODUCED BY INEFFICIENT, HIGH-COST DOMESTIC PRODUCERS AT THE EXPENSE OF OUTPUT FROM THE MORE EFFICIENCT LOW COST FOREIGN PRODUCERS, therefore resulting in a misallocation of global resources.

Define ‘multinational company’.

Define an ‘export quota’. 

Define ‘free trade’. 

Identify 2 reasons why government place an embargo on imports

Define trade protection. 

Define import tariff. 

Define import quota. 

Define protectionism. 

Explain 2 benefits that a firm gains from producing in another country.

Explain how two methods of trade protection may reduce imports.  

Explain two benefits consumers may gain from free trade. 

Explain two methods of trade protection.

Explain two reasons why a government imposes a tariff on imported gold.

Analyse how free trade can reduce firms’ costs of production.

Analyse how the removal of import tariffs increases a country’s output.

Analyze the impact on an economy of the removal of import quotas imposed by other countries. 

Discuss whether a reduction in a country’s trade protection will improve its economic performance.

Discuss whether an economy would benefit from an MNC setting up

Discuss whether imposing tariffs will benefit an economy.

Discuss whether a country’s economy would be harmed if an MNC moved out.

Discuss whether consumers would benefit from an increase in imports.

Discuss whether protectionism saves jobs.

Discuss whether multinational companies (MNCs) will always locate in countries with a high GDP per head.

Discuss whether a country which engages in free trade is likely to have a higher economic growth rate than one which uses trade protection. 

Discuss whether low unemployment in a country will encourage multinational companies to set up there. 

Discuss whether or not a developing country will benefit from the removal of trade restrictions. 

Discuss whether or not MNCs are likely to set up in countries with low unemployment