Question

1) What are the disadvantages of import restrictions in regard to creating domestic employment opportunities? 2) As a result of the many rounds of the General Agreement on Tariffs and Trade (GATT) and other trade negotiations, both tariff and nontariff barriers have been significantly reduced on a worldwide basis. However, given recent shifts in productive assets and employment from many industrialized countries to emerging economies such as India and China, cries for protectionist measures can be heard from many quarters. Do you think that governments in industrialized countries will once again implement some form of protectionist measures in order to protect their markets and industries? Do you expect that such measures would be in the form of tariffs or nontariff barriers? 3) Discuss the issue of stakeholders in government trade policy, i.e., whose interests should be of paramount concern-producers, consumers, or the government.

Answer 1

Answer:

1. Import restriction is a tool to safeguard domestic infant or uncompetitive industries from foreign competitors. Following are the disadvantages of import restrictions:

a. Import restrictions are not economically efficient. The economic efficiency is achieved when a country produces those goods in which it has comparative advantage. The producers in home country produce at high costs and use resources in an inefficient manner.

b. The consumers are worst hit by import restrictions. First they have less choice and second they have to pay higher prices for goods. Thus there is drastic decrease in consumer surplus.

c. Producers get no incentive to change to modern and cost effective method of production. Thus they can not compete with foreign producers in future also.