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Trade Protection and Reducing Current Account Deficit

Question

Discuss whether a government should use trade protection to reduce a current account deficit.

Category:

International Trade and Exchange Rates

Frequently asked question

Preview Answer

I. 🍃Introduction
- Definition of trade protection
- Importance of trade protection in international trade

II. Reasons why trade protection should be implemented
- Increase in import prices due to tariffs
- Reduction in import volumes due to trade quotas
- Stoppage of imports of certain products through embargoes
- Prevention of dumping of output by other countries
- Increase in output, income, and reduction in unemployment due to a reduction in current account deficit

III. Reasons why trade protection should not be implemented
- Possibility of retaliation by other countries leading to a fall in GDP and rise in unemployment
- Discouragement of firms from becoming efficient leading to a continuation of the deficit
- Other policies may be more effective
- Disadvantage to domestic consumers and producers through raised prices, reduced imports, and reduced quality
- Inability to produce some products domestically

IV. 👉Conclusion
- Summary of the reasons for and against trade protection
- Importance of considering the potential consequences before implementing trade protection policies.

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