Protectionism and Free Trade

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Protectionism and Free Trade

6) Prevent dumping

Dumping is exporting a product at a price which is either below the price it charges in its home market or is below its costs of production (Wikipedia).

Dumping is usually not easy to spot and therefore it is hard to prevent. However many countries, in order to intimidate foreign industries in selling products below the domestic price level, set very high fines consisting in paying the difference on each unit sold between the fair price and the price which the good was sold (working like a tariff).

A company would never go against its business (usually). In dumping cases the companies sell below cost because they have a comparative advantage in producing the good, for example: government could  subsidize the good or the good could be produced at lower production costs. In fact this is the reason why they are advantaged and can control the market price, making the other companies adjust to the new price and increase competition. Dumping is however condemned, not prohibited. As long as a domestic industry is not materially injured or not threatened with material injury (,  a foreign company is not guilty of dumping.

Dumping is a threat for a country’s economy. However this is only one negative aspect of free trade and is a very uncommon one due to the very strict restrictions. Even if a government feels dumping a tariff will solve the problem, pushing the prices back up and increasing revenue.

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*if a country does have a comparative advantage in producing a good, the government could still act like the U.K. did in the 19th century, as described in the book “the choice”.

*by putting tariffs to prevent dumping the only thing a country does is hurt itself. This is because by putting tariffs foreign companies would export less or even cut the trade and at the same time put tariffs on your country or refuse to trade.

7)Protect product standards

Protecting product standards does not mean eliminate trade, instead I think a country can only protect a standard if there ...

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