Benefits other than employment: More foreign firms selling their products in the domestic country will reduce the products sold by domestic firms. Lower GDP, lower profits for the business (which will reduce incomes for shareholders of the firm, reducing their SoL).

Dumping is where an overseas firm sells large quantities of a product for a price below its cost of production in the domestic market.

A foreign firm might do this to deliberately destroy foreign competitors, thereby reducing the amount of competition in the long-term.

In some cases, businesses that dump products are heavily subsidised by their governments, which is what enables them to sell the product for a price below the cost of production!

this money can be spent on government services to improve living standards.

infant industries are new industries which struggle to compete with established competitors abroad.

It is often argued that these new industries need protection from more established foreign firms. Protecting these industries can give them time to grow and start to enjoy EoS, at which point they will be in a stronger position to compete with bigger foreign firms.

(ev) Possible negative => it is difficult for governments to identify which small industries will be able to grow and compete with established foreign industries in the future.

protectionist policies like tariffs would reduce M and therefore improve the current account balance.

E.g.) the EU recently banned all beef from cattle raised using growth hormones because it felt that it was not safe for human consumption.

Cheap M from free trade can take away business from domestic firms, causing the loss of employment.

Free trade has encouraged developing countries - LDC with lower production costs to increase their production because free trade enabled them to easily sell the excess G/S to other countries.

the country may wish to retaliate against another country due to dumping or some types of protectionism like tariffs or quotas.

A problem is that this retaliation can result in a trade war which will tend to reduce trade between the two nations and negatively affect both countries.

free trade encourages countries to specialise in the production of just a few G/S in which they are very efficient.

This exposes the country to the risk of selling just a few products. What if demand patterns change and there is a drop in the demand for one of your products? It could seriously impact your GDP and employment.

For example, some developing nations rely on producing and selling primary goods such as oil or copper. If demand or prices fall for these goods, nations will suffer a loss of trade and income.

Primary goods generally have a low YED because they are normally necessities. When the global economy grows, demand for them will not increase at the same pace.

It raises revenue for the government, which can be used to deal with other problems.

It increases prices for domestic consumers and businesses immediately.

Foreign firms trying to exports products into a country can reduce their prices in order to continue selling the same number of products into the country. - The firm may be able to do this if they are willing to accept lower profits. This may be true of large companies with plenty of cash reserves or firms which may receive financial help (e.g. subsidies) from their own governments.

If tariffs are set too high, imports could shrink to near zero and revenue from the tariffs could be very low. Whether or not this is a big disadvantage would depend on the aim of the government when setting the tariff.

Foreign firms can’t simply reduce their prices to get around the policy (see disadvantage of tariff) – they must follow the quota limits.

Although prices will rise, they will probably not do so as immediately as tariffs, as it takes a while for shortages to force the price up. In the meantime, domestic producers may be able to “plug the gap” in the market.

Consumer choice will be limited as there is a smaller number of products available.

Unlike tariffs, it doesn’t directly raise any revenue for governments.

Domestic producers may be over-protected and fail to improve their own efficiency, quality or innovation.

Lower prices for domestic consumers (due to lower costs of production for businesses), if subsidies are given for domestic sales (not only export sales).

If subsidies are given to exporters, it will reduce their costs of production, enabling them to offer lower prices to foreign customers and break into international markets. This will; increase their profits, employment and GDP for the country.

It encourages more new domestic producers to enter the market (because it is more profitable). This increases competition, bringing the advantages of lower prices, more choice, higher quality and more innovation.

Can be costly for the government. This spending has an opportunity cost (e.g. education, healthcare).

It can be used in the special case of health and safety concerns, and is thus vital to keep domestic consumers safe.

It can reduce imports to zero immediately, unlike the other protectionism methods.

It may not be possible to implement this method if there are not legitimate health & safety concerns about the G/S.