Economic Context
This discusses the free trade vs protectionism; economic liberalization vs economic nationalism.
In the global business environment a number of regional trading arrangements exist. There are:
- Free trade areas
- Custom Unions
- Economic Unions
Free Trade – encourages easy movement of goods, services labour and capital between different countries. This means, no need to pay quotas, tariffs, subsidies and discriminatory taxation.
B – Better quality goods and better quality of life
A – Afford to Export
G – Economic growth and encourages entrepreneurship
E – Efficient production makes countries to develop and invest in resources
L – Less conflict between countries that trade and communicate with each other
S – Specialization by countries in the production of the goods and services they are best suited to producing
Arguments against Free Trade (CODE: SQUID)
S – Single product in one country tend to monopolize the supply (i.e., the oil exporting countries of the Middle East)
Q – Quite prevent the new industries to develop and become established
U – Undermine or weaken the local culture (i.e., Americanization of Europe)
I – Increases consumer expectation and encourages inefficiencies
D – Dependencies of less developed countries to other countries for some products
Protectionism – restrict trade with one or more other country to protect home country producers from overseas suppliers. This is also known as economic nationalism.
Protective Trade Measures:
Quotas – restricting the quantity able to be imported
Tariffs – taxing import making them more expensive
Subsidies – helping local producers giving them an advantage over overseas competition
Campaigns – encouraging locals to buy locally produced goods
Technical barriers – implementing string quality, environmental, health and safety and packaging regulations that restrict imports
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