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Sunday, January 9, 2011

Students have to solve the question - “How was ‘protectionism’ practiced?” It is the question of SMU MBA MB0037 (International Business Management). It is the next assignment question of “exchange rate arrangements of developing and transition countries” and “five major product strategies in international marketing” for Sikkim Manipal University MBA MB0037.

Although trade generally benefits a country as a whole, powerful interests within countries frequently put obstacles – i.e., they seek to inhibit free trade. There are several ways this can be done:

Tariff barriers: A duty, or tax or fee, is put on products imported. This is usually a percentage of the cost of the good.

Quotas: A country can export only a certain number of goods to the importing country. For example, Mexico can export only a certain quantity of tomatoes to the United States, and Asian countries can send only a certain quota of textiles here.

“Voluntary” export restraints: These are not official quotas, but involve agreements made by countries to limit amount of goods they export to an importing country. Such restraints are typically motivated by the desire to avoid more stringent restrictions if there exporters do not agree to limit themselves. For example, Japanese car manufacturers have agreed to limit the number of automobiles they export to the United States.

Subsidies to domestic products: If the government supports domestic producers of a product, these may end up with a cost advantage relative to foreign producers who do not get this subsidy. U.S. honey manufacturers receive such subsidies.

Non-tariff barriers, such as the different standards in testing foreign and domestic products for safety, disclosure of less information to foreign manufacturers needed to get products approved, slow processing of imports at ports of entry, or arbitrary laws which favour domestic manufacturers.

Justifications for protectionism: Several justifications have been made for the practice of protectionism. Some appear to hold more merit than others.

Protectionism tends to lead to additional tariffs or other protectionist measures by other countries in relations, reduced competition, a weakening of the trade balance.


Archana said...

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