Free Trade and Protection

Forms of Protectionism

 

What is Protectionism?

Protectionism is methods used by governments to distort free markets and movements of resources to protect domestic industries from foreign competition.

 

Tariff

Tariffs are one of the main forms of protectionism that involve creating a tax on imports to discourage consumption of imports and decrease competition with domestic producers.

Tariffs are the only form of protectionism that also provide a source of government revenue.

 

Examples of Australian Tariffs

  • 5% tariff on imported personal, light commercial and four wheel drive vehicles

 

Subsidy

Government subsidies are grants given to domestic producers to lower their cost of production to better compete with lower price imports. Subsidies are seen as favourable by the general public as it does not increase prices but do provide a hidden burden on tax revenues. Government revenue could be better used elsewhere, such as for infrastructure, health or education rather than funding inefficient domestic industries.

 

Examples of Australian Government Subsidies

  • Automotive Transformation Scheme (ATS) - $2 billion grant given to Australian automotive producers

 

Quotas

Quotas are a form of protection that restricts the quantity of imports that can be entered into a country. Quotas are most favourable amongst domestic producers as it provides certainty amongst the number of imports they will be competing against.

 

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