Globalisation, free trade and protection

Drinks producers in India are opposing proposals to abolish tariffs on imported drinks. They argue that cutting tariffs would wipe out the developing drinks industry because of mass imports of low-cost drinks. Which protectionism argument are they using?

Feb/March 2016

Who would be most likely to gain if India prohibited all steel imports?

Feb/March 2016

What is guaranteed to stimulate a greater level of international trade?

Feb/March 2016

Which policy counts as a type of protectionism?

Feb/March 2017

At what point does free trade take place?

Feb/March 2017

Which trade protection method has the most predictable impact on controlling the volume of imports?

Feb/March 2018

India contains several fast-growing industries, among them construction, engineering, healthcare and retail. Its high-technology industry, often called ‘hi-tech’, is the quickest expanding of all, creating more than 200 000 jobs each year. It now provides employment for over 10 million people and generates exports valued at US$90 billion annually. Businesses in this industry focus on research and development, electronics and software production. Software production covers applications (apps) for smartphones and tablets. One Indian hi-tech firm has created an app that enables users to view menus from a range of restaurants, reserve a table and place food orders. The firm now offers the app in several countries, including the Philippines, Turkey and the USA. This Indian hi-tech firm also manufactures electronic equipment in these countries. One reason for expanding overseas is the relatively weak demand for restaurant meals in India. That could soon alter as incomes rise and restaurants step up their advertising, including on the firm’s app. India’s hi-tech industry is centred in Bengaluru (Bangalore). The city has close connections with universities and multinational companies (MNCs), and it is home to some of India’s most innovative entrepreneurs. Some of these entrepreneurs originate from other countries. Immigrants have an important part in the formation and expansion of hi-tech firms across the world. Several factors can persuade entrepreneurs to relocate to another country, including a low tax rate on profits. Growth in an economy may affect how many new firms are established. In turn, economic growth is affected by the amount firms spend on capital goods (investment). Fig. 1 shows India’s economic growth rate and the percentage change in investment in India between 2008 and 2014. India’s economic growth rate reached its highest point in 2010. It then declined in 2011 and 2012, partly because interest rates rose and there were worries about future economic prospects. Fig. 1 Economic growth rate and percentage change in investment in India 2008-14. The vertical axis is marked ‘%’. The horizontal axis lists the years 2008, 2009, 2010, 2011, 2012, 2013 and 2014. A dashed line shows ‘Economic growth rate (%)’. A solid line shows ‘Change in investment (%)’.

Feb/March 2018

A nation applies tariffs and quotas to goods brought in from abroad. What would the people in that nation notice?

Feb/March 2019

Skin creams that help to prevent sunburn and are produced in the European Union (EU) are more effective than those produced in the United States (US). US tourists buy large quantities of these creams while travelling in Europe. Production of such creams is banned in the US because of the chemicals they contain. In 2013, talks started to end this ban so that production in the US could be permitted. How is this free trade likely to affect manufacturers of skin creams in the US and the EU?

Feb/March 2019

What is the most likely consequence of a reduction in tariffs?

Feb/March 2020

A country adopts a policy of agricultural self-sufficiency rather than depending on supplies from other countries. What is likely to occur in the country as a result?

Feb/March 2020

Which trade-protection method would allow domestic firms to reduce their prices and offer lower prices than imported goods?

Feb/March 2021

How could a multinational company (MNC) provide direct benefits to a host country?

Feb/March 2021

Carefully study the source before you attempt Question 1. Source material: Will Germany continue to be a strong economy? Germany is a country with a trade surplus and a high GDP per head. It also has a budget surplus (government tax revenue greater than expenditure), a high HDI and a low inflation rate. In recent years, German firms have exported a higher value of goods and services. This has contributed to the growth of world trade, caused partly by a fall in transport costs. A relatively large number of German firms produce both in Germany and in other countries, helped by better communications. Germany is a major producer and exporter of luxury cars. Demand for luxury cars was influenced in 2018 by increases in incomes in Germany and abroad, a rise in the price of US luxury cars and, in some countries, a fall in the price of petrol. Improvements in the quality of education and information on job vacancies have made it easier for workers to change jobs in Germany. This greater ability to change jobs has helped to reduce unemployment and increase the country’s output. Fewer workers in the German car industry are now members of a trade union. As shown in Table 1.1, trade union membership in Germany has declined in recent years. A challenge facing Germany is its ageing population. The effect of an older labour force is uncertain. It may mean firms become reluctant to invest in new technology, but a shortage of young workers may encourage firms to buy more capital goods. Germany’s population may fall and there will soon be fewer Germans aged under 30 than over 60 unless immigration continues at a relatively high rate. Immigration might increase both the country’s labour force and its government’s spending on education.

Feb/March 2021

What does the term quota mean in international trade?

Feb/March 2023

What is one likely effect of introducing a tariff?

Feb/March 2024

The US imposes a 25% tariff on Chinese steel to safeguard jobs in the US steel industry. In which circumstance would this policy be most effective?

Feb/March 2025

Russia is a wheat exporter. In 2010, a poor harvest caused the Russian government to stop wheat exports so that sufficient supplies would remain for home use. What was the most probable result of the government’s decision?

May/June 2015

Sunburn-preventing skin creams produced in the European Union (EU) are more effective than those made in the United States (US). When US tourists travel to Europe, they often buy large quantities of these creams. Production of such creams is prohibited in the US because of the chemicals they contain. In 2013, talks started to lift this prohibition so that production could take place in the US. What effect is this freer trade likely to have on manufacturers of skin creams in the US and the EU?

May/June 2015

Russia sells wheat overseas. In $2010$, a poor harvest caused the Russian government to stop wheat exports, so that adequate supplies would remain for use within the country. What was the most likely result of the government’s decision?

May/June 2015

Russia exports wheat. In 2010, a poor harvest caused the Russian government to stop wheat exports so that sufficient supplies would remain for domestic consumption. What was the most likely result of the government's decision?

May/June 2015

A country states that it wants to strengthen its trade protection policies. What could this mean?

May/June 2016

It has been proposed that every country that manufactures arms should prohibit the export of weapons and reduce production so as to lower the danger of war. What would be the result if this took place?

May/June 2016

A country states that it wants to strengthen its trade protection policies. What could this mean?

May/June 2016

It has been proposed that every country that manufactures arms should prohibit weapon exports and reduce output in order to lower the chance of war. What would happen if this took place?

May/June 2016

A country states that it wants to strengthen its trade protection policies. What could this include?

May/June 2016

Which government policy would be most likely to boost the volume of exports?

May/June 2017

What is always included in international free trade?

May/June 2017

Which government policy is most likely to lead to a higher volume of exports?

May/June 2017

In 2015, Russia prohibited food imports, including milk, from the European Union (EU). Which outcomes are most likely to occur because of this?

May/June 2017

Which government policy is most likely to raise the volume of exports?

May/June 2017

Which method would simultaneously cut imports and promote exports?

May/June 2017

A country has chosen to expand free trade with the nations it trades with. Which action would help it to achieve this aim?

May/June 2018

A country wants to adopt a policy of trade protection. Which action would it take?

May/June 2018

What would place the greatest restriction on the amount of international trade in steel?

May/June 2018

The Tripartite Free Trade Area (TFTA) was created in 2015. It spans 26 countries and is Africa’s largest free trade area. When trade barriers are removed, economies can exploit economies of scale more fully. However, some economists think that improving Africa’s roads would be more effective and would do more to cut a current account deficit on the balance of payments and improve living standards.

May/June 2018

World output has increased in recent years, yet a number of countries have slipped into recession. The easing of trade barriers such as import tariffs has also slowed, which has reduced the growth of world trade.

May/June 2018

In the 1990s, Cambodia shifted to a mixed economy. A consequence of this was greater specialisation in the clothing industry. In 2005, clothing import quotas in the main USA and EU markets were lifted. Clothing now makes up 80% of Cambodia’s exports. A larger private sector has led to more malnutrition in Cambodia.

May/June 2018

The US government chooses to cut the size of the quota on a good that it purchases from China. What is likely to occur?

May/June 2019

In 2013, the European Union (EU) imposed a $48\%$ tariff on inexpensive Chinese solar panels because their low cost was caused by subsidies paid by the Chinese government. Which protectionism argument was the EU applying?

May/June 2019

If the US government cuts the quota on a product imported from China, what is likely to happen?

May/June 2019

The US government chooses to lower the size of the quota on a good it imports from China. What is likely to happen?

May/June 2019

There was a worldwide steel surplus in 2017. In mid-2017, the US government was considering tariffs on steel imports to shield its shrinking steel industry. Low-cost imports from other countries were cutting jobs in the US steel industry. Changes in education were also shaping the pattern of US employment.

May/June 2019

Which protection method always cuts the supply of an imported good down to zero?

May/June 2021

A multinational company (MNC) wants to invest in a low-income country so as to increase its palm oil production. What factor is most likely to enable this investment?

May/June 2021

Which benefit is most likely for a low-income economy if it abolishes tariffs on imported goods and services?

May/June 2021

Economies have become increasingly interconnected through globalisation. What might discourage this?

May/June 2021

What is one advantage of a multinational company (MNC) for the host country?

May/June 2021

Globalisation refers to the way domestic firms get involved in international markets. What factors encourage globalisation?

May/June 2021

A government abolished the quota on goods brought into the country. What is the most likely outcome of this?

May/June 2022

The US government imposes tariffs on steel imported from China. This raises the price of steel brought in from China. Whose income is likely to rise directly as a result?

May/June 2022

A government abolished the quota on goods brought into the country. What is the most likely outcome of this?

May/June 2022

Which action is not undertaken by a government in its international role?

May/June 2022

A government abolished the quota on goods brought into the country. What is the most likely effect of this?

May/June 2022

Governments in low-income countries often permit foreign multinational companies (MNCs) to extract minerals within their borders. Which trade-off between benefit and cost could this create for the low-income countries?

May/June 2022

The South Korean government believes that Japan is dumping steel. South Korean firms both trade with other countries and manufacture there too. Some South Korean multinational companies (MNCs) say they help to reduce poverty in their host countries. In 2019, South Korean firms were hit by a depreciation in South Korea’s foreign exchange rate. Some firms also faced a shortage of workers, and this was linked to the country’s very low birth rate.

May/June 2022

Vorarlberg, which is a region in Austria, has the highest income and the best healthcare of any area in Austria. Its location close to Germany and Switzerland, together with free trade between these countries, is an advantage. Even so, Vorarlberg has only a small number of foreign multinational companies (MNCs), and its inflation rate is higher than that in most parts of Europe.

May/June 2022

Leading jewellery firms in Qatar and Ukraine have urged their governments to end trade protection between the two countries so that jewellery trade can grow. The jewellery businesses in Qatar and Ukraine make distinctive products and are improving in quality. They think that greater trade between the two countries will allow them to benefit from internal economies of scale in jewellery production.

May/June 2022

For developed economies, it is less expensive to import some cereals from developing economies than to grow them themselves. What could lessen international trade in cereals?

May/June 2023

A country sets a quota on imported cars. What is the most likely result of this measure?

May/June 2023

Which of the following is not a reason for the decline of manufacturing industries in developed economies in recent years?

May/June 2023

Country X sells steel to country Y at a price that is lower than the cost of producing it. As a result, demand for steel made in country Y has fallen. What is one trade protection measure that country Y could use to reduce steel imports from country X?

May/June 2023

What is guaranteed to encourage a higher level of international trade?

May/June 2023

The bringing in of a product from a different country has been prohibited. Which term is used to name this form of protection?

May/June 2023

What is one desired result of shielding infant industries from free trade?

May/June 2024

The diagram illustrates the market for an imported good, with equilibrium at point X. The country places a tariff on this good. Does the new equilibrium lie at point A, B, C or D?

May/June 2024

What happens to price and equilibrium quantity when an import tariff is imposed on a good?

May/June 2024

During 2021, the US recorded a deficit in trade in goods on the current account of its balance of payments. The US contains many firms across a broad variety of industries. Import tariffs are applied to shield some of those industries. That year, the US government also increased spending on healthcare to $797bn, which had an impact on many industries in the country.

May/June 2024

What would an economist understand by the term dumping?

May/June 2025

Mining undertaken by multinational companies (MNCs) may create both advantages and disadvantages for the host nation. Which activity is least likely to provide a benefit to the host nation?

May/June 2025

The UK government raises the price of steel brought in from Germany by increasing an existing tariff. If steel has price-inelastic demand, what effect would this have on the revenues of German steel producers and the UK government?

May/June 2025

Australia contains a range of firms that carry out business in other countries. These multinational companies (MNCs) offer a number of advantages to Australia, their home country. The Australian Government applies relatively low import tariffs, and the country operates a floating exchange rate. In recent years, Australia has seen more investment and a higher Human Development Index (HDI) value.

May/June 2025

A road in Montenegro that opened in 2022 was among the world’s costliest. Its construction was supported by a foreign commercial bank and another multinational company (MNC). This road may help the Montenegro Government achieve its macroeconomic aims and expand Montenegro’s international trade. MNCs can have a major effect on the host countries where they operate.

May/June 2025

The diagram illustrates the market for imported cars. Which government action might be represented by the shift in the diagram?

Oct/Nov 2015

A country places tariffs and quotas on goods brought in from abroad. What will the citizens of that country experience?

Oct/Nov 2015

It has been forecast that Mexico will be among the world’s top ten economies by 2020. The country’s industrial make-up has been changing for some time. In 2008, 12% of the labour force were employed in the primary sector (mainly agriculture), 26% in the secondary sector (mainly manufacturing) and 62% in the tertiary sector (services). By 2012, employment had dropped by 1% in the primary sector and by 2% in the secondary sector. During recent years, Mexico has been removing trade protection measures such as tariffs and quotas. The country now has free trade with more than 40 other countries. International trade has a major role in the Mexican economy, with a third of its output being exported and imports accounting for more than a third of the products bought in Mexico. Nearly 80% of Mexico’s exports go to the United States of America (US). Mexican firms have a wide range of sources for imported raw materials and a large international market in which to sell their products. The main destination for Mexico’s shrinking number of emigrants is the US. After an economic downturn in 2009, the Mexican economy has been expanding. Incomes have increased and life expectancy has risen. Table 1 shows the income levels and life expectancy for a number of countries. Although the standard of Mexico’s education is not very high, poverty is falling in the country as living standards rise. More people now have access to better-quality health care. In contrast to its neighbour the US, unemployment has been falling in Mexico. Costs of production in Mexico are rising more slowly than in China. Mexico imports products from China and also competes with China in a number of export markets. Some of Mexico’s leading exporting firms are monopolies within the country. One is Pemex, the state-owned oil and gas monopoly. The firm sells oil throughout the world. Some economists argue that Mexican consumers would gain if Pemex were sold to the private sector.

Oct/Nov 2015

A Japanese car manufacturer decided to make its cars in a factory in Europe. Which of the following would not be a reason for making this choice?

Oct/Nov 2016

A government abolished the quota on goods brought into the country. What is the most likely outcome of this?

Oct/Nov 2016

A Japanese car manufacturer decided to make its cars in a factory in Europe. Which of these would not be a reason for choosing to do this?

Oct/Nov 2016

A government abolished the quota on goods brought into the country. What is the most likely outcome of this?

Oct/Nov 2016

In recent years, productivity growth in Brazil has been weak, so average costs have stayed relatively high. Some economists argue that this weak productivity growth is caused by protectionism. The Brazilian Government places high tariffs on many imports, including smartphones; it says this protectionism protects Brazilian jobs.

Oct/Nov 2016

Mozambique is a developing economy with a relatively fast economic growth rate. In recent years, the metical has depreciated against the US dollar. That has affected the country’s unemployment rate. Some economists in Mozambique have argued for higher tariffs on imports in order to cut unemployment.

Oct/Nov 2016

What is one advantage gained from tariffs?

Oct/Nov 2017

The UK aims to raise exports to the US. Which action would make this happen?

Oct/Nov 2017

What is one advantage of tariffs?

Oct/Nov 2017

What is one advantage of tariffs?

Oct/Nov 2017

In Pakistan, the range of cars available to purchase is limited. The country has a population of approximately 190 million, yet only about 120 000 cars a year are made there. Car producers in Pakistan are shielded from overseas competition by several forms of trade protection.

Oct/Nov 2017

In 2015, Puerto Rico said it was looking at ending some of its trade embargoes. At the same time, its government was also reconsidering how much it intended to spend. Incomes in Puerto Rico have been rising, with some workers benefiting more than others. There have also been microeconomic changes, as the price elasticities of demand and supply have shifted in some markets.

Oct/Nov 2017

What is one valid economic reason for trade protection?

Oct/Nov 2018

If South Korea sets up a factory in Switzerland that turns a profit, what is the most likely outcome?

Oct/Nov 2018

The table sets out the tariffs levied by the European Union (EU) on imported tropical fruit, based on how much processing they have undergone. What could explain this tariff pattern?

Oct/Nov 2018

What is most likely to occur if South Korea establishes a factory in Switzerland and it becomes profitable?

Oct/Nov 2018

The table presents the tariffs charged on imported tropical fruit in the European Union (EU), based on the extent of processing. What could account for this tariff pattern?

Oct/Nov 2018

A government places a cap of 2 million on the number of smartphones imported into the country. What term is used for this restriction?

Oct/Nov 2018

The table illustrates the tariffs levied on imported tropical fruit in the European Union (EU), grouped by how much processing has taken place. Fresh tropical fruit: $8.0\%$ Canned tropical fruit: $11.3\%$ Bottled tropical fruit drinks: $23.6\%$ What could explain this tariff pattern?

Oct/Nov 2018

In 2016, the steel market had a worldwide surplus, which drove steel prices down. That prompted calls for protectionist measures from other steel producers, including those in the EU and the USA. Car producers did not support such measures, because about 22% of a car manufacturer’s costs are linked to steel prices.

Oct/Nov 2018

Gold prices climbed in 2016. As a result, owners of gold mines were encouraged to use more resources so that gold supply could be increased. The extent of competition in gold production is not the same in the various gold-producing countries. A number of countries, including India, levy a tariff on gold imports.

Oct/Nov 2018

Protectionist policies can reduce global economic growth. What could be one explanation for this?

Oct/Nov 2019

What might cause the volume of international trade in the world economy to fall?

Oct/Nov 2019

What is one drawback of trade protection for manufactured goods?

Oct/Nov 2019