Question

Could you please give an answer to the following question.

Most arguments that are used to argue against free trade is that free trade leads to a reduction in jobs. Explain how import quotas combined with allowing foreign direct investment are likely to be easier to justify as a politician than fully free markets. Can you think of some potential issies that might arise when allowing firms to circumvent quotas with foreign owner domestic plants. (1 Mark)

Answer 1

Import quotas is a kind of trade restriction , that restricts the amount of good that can be imported in a country . This helps domestic firms . Cheaper variant of foreign substitutes are restricted from taking over the market and putting domestic producers out of market . A foreign direct investment is an investment in the form of a controlling ownership in a business in one country by an entity based in another country . Freign direct investment not only allows volume of investment to grow but also allows domestic business to grow with the help of foreign investment . So this agenda of combining both quotas and FDI would be beneficial to domestic firms more than free trade .

Quotas with foreign owner domestic plants may reduce the amount of foreign investment in the country , it may cause flight of capital and loss of potential trade relations .