trade is the exchange of goods
and services between countries. An import is the
A nation trades because it lacks the raw materials, climate, specialist labour, capital or technology needed to manufacture a particular good. Trade allows a greater variety of goods and services.
The principle of comparative advantage states that countries will benefit by concentrating on the production of those goods in which they have a relative advantage.
Protectionism occurs when one country reduces the level of its imports because of:
， Infant industries. If sunrise firms producing new-technology goods (eg computers) are to survive against established foreign producers then temporary tariffs or quotas may be needed.
， Unfair competition. Foreign firms may receive subsidies or other government benefits. They may be dumping (selling goods abroad at below cost price to capture a market).
， Balance of payments. Reducing imports improves the balance of trade.
， Strategic industries. To protect the manufacture of essential goods.
， Declining industries. To protect declining industries from creating further structural unemployment.
， Prevents countries enjoying the full benefits of international specialization and trade.
， Invites retaliation from foreign governments.
， Protects inefficient home industries from foreign competition. Consumers pay more for inferior produce.
Tariffs (import duties) are surcharges on the price of imports. The diagram below uses a supply-and-demand graph to illustrate the effect of a tariff.
Note that the tariff
， raises the price of the import;
， reduces the demand for imports; a
， encourages demand for home-produced substitutes;
， raises revenue for the government.
Quotas restrict the actual quantity of an import allowed into a country. Note that a quota:
， raises the price of imports;
， reduces the volume of imports;
， encourages demand for domestically made substitutes.
， Administrative practices can discriminate against imports through customs delays or setting specifications met by domestic, but not foreign, producers.
， Exchange controls (currency restrictions) prevent domestic residents from acquiring sufficient foreign currency to pay for imports