Protectionism of International Trade

Even though international trade brings a greater increase in world output, most countries have trade restriction to protect local products from foreign competition. The following are some of the protection tools are commonly use in order to protect international trade.

1. Tariff

Tariff is tax imposed by government on imported goods and services. When tariff import was imposed, import prices will increase and import quantity of items requested will fall. 

A) Tariff Ad-Valorem

• Taxes of imports calculated based on price of imported good.

• If tariff was 50%, if the total import goods RM20,000, imposed total tax as much as RM10,000, while worth import goods RM40,000 imposed total tax as much as RM20,000.

B) Specific Tariff

• Fixed tax calculated based on quantity of the imported goods.

• If tariff was RM30 each 100 kilogram’s rice import, that the tax for imported rice are fixed no matter price of imported rice up or fall.

2. Quota

Quota is government action for maximum limit of the amount goods or service could be imported from abroad for one certain period. Quota restriction will reduce and limit quantity of total import. When quota imposed, import goods offering will fall. Its effects, inside of quantity import in the local market will be reduces. Shortage of imported goods will encourage consumer to buy more local goods.

3. Subsidies Exports

This is the financial assistance to orienteer’s manufacturer export. Export subsidy will reduce cost liability manufacturer and further reduce exports price. Export subsidy will increase the competitive of exports goods.

Example:

Subsidy export’s grant by Malaysian government to palm oil producer in Malaysia increased Malaysian palm oil export and reduce American soybean oil exports in international market.

4. Embargo

Boycott policy implemented by government on import from particular country.

All local authorities in port, train airport and station prohibit goods those from countries imposed embargo brought into country. Embargo restrictions intend to stop import and further economic damage enemy country or those countries violate world humanity principle.

Reasons of Protectionism

1. To Protect Infant Industries

Trade barrier intend to protect new industry. Most of new industry still not capable to compete phased global. These new industries not yet get operating efficiently of production at lower costs. This trade barrier enable new industry together with industry have developed.

Example:

Malaysian government put high taxes on imported car to protect national car like PROTON.

2. Expand National Economy

Most developing country practice traditional economy/ low agricultural and low income activities.

Effort diversify nation's economy, especially develop manufacturing industry, aimed reduce country's dependence in certain import and exports, increase productivity and national income, and stabilize the country's economy.

To achieve effort diversify nation's economy, government implemented policy check goods import which competed with local produce such as impose import tariff or import quota, and policy promote exports to raise goods competitive force country's export in international market.

 

3. Increase Employment

Local development of industries especially manufacturing industry can create many job opportunities. Inside unemployment rate one country could be reduced.