Chapter 5 Non-Tariff Trade Barriers Flashcards
What are Non-Tariff Trade Barriers (NTBs)?
Restrict trade through quotas, subsidies, and labeling rules (w/ out the use of tariffs)
Why have Non-Tariff Trade Barriers (NTBs) increased since the 1960s?
Because tariffs have been reduced, so countries have turned to NTBs to control trade
What are the goals of Non-Tariff Trade Barriers (NTBs)?
-protect domestic industries
-control imports
-gain political leverage
What is an absolute import quota?
A strict physical limit on the quantity of imports
What is a global quota?
A cap on total imports, regardless of the country of origin
What is a selective quota?
A limit on imports from specific countries
What are the effects of import quotas?
Higher prices, reduced consumer surplus, and inefficient domestic production.
What happens to the price under a quota? (ex cheese case)
It rises from $2.50 to $5.00 due to limited imports
What are the four welfare effects of quotas?
Redistributive effect (A), Protective effect (B), Quota rent (C), Consumption effect (D)
Who benefits from quota rent?
Depends on who gets the license: foreign exporters, U.S. importers, or the government
How do tariffs differ from quotas in revenue generation?
Tariffs generate government revenue; quotas may not
How do quotas and tariffs differ in their impact on imports?
Tariffs allow unlimited imports at higher prices; quotas restrict volume and may cause monopolies
What is a tariff-rate quota?
It allows a set amount at a low tariff and charges a higher tariff for excess
What products often use tariff rate quotas (TRQs)?
Argicultural goods like sugar, milk, and beef
What are methods to allocate tariff rate quotas (TRQs) licenses?
First come, historical allocation, or auction.
How can a tariff rate quota (TRQ) end up working the same way as a regular quota?
A TRQ lets a certain amount of goods in at a low tax. After that, the tax gets really high. If the high tax is too expensive, no one will import more. So it ends up acting like a hard limit — just like a regular quota.
What is a voluntary export restraint (VER)?
A voluntary agreement to limit exports, often under foreign pressure
What were common U.S. voluntary export restraints (VERs) in the 1980s?
Autos, steel, and textiles
Who gains from quota rents under voluntary export restraint (VERs)?
Foreign firms
Why are voluntary export restraints (VERs) now uncommon?
They’re largely banned in modern trade agreements
What are domestic content requirements?
Rules that require a certain % of a products value to come from domestic sources
What are the effects of domestic content rules?
Higher production costs and prices
What is an example of a domestic content rule?
USMCA requires 75% of car content from N. American and 40-45% from $16/hr labor
What is a domestic production subsidy?
- Gov’t pays firms to produce domestically (e.g., steel).
- No direct price hike for consumers but costly to taxpayer
