Chapter 6 Flashcards
refers to a situation where a government
does not attempt to restrict what its citizens can buy
from, or what they can sell to, another country
Free Trade
While many nations are ___________ committed to free
trade, they tend to intervene in international trade to
protect the interests of politically important groups
nominally
There are seven main instruments of trade policy, often
referred to as
tariff (TBs) and non-tariff barriers (NTBs)
What are the seven TBs and NTBs?
- Tariffs
- Subsidies
- Import quotas
- Voluntary export restraints
- Local content requirements
- Antidumping policies
- Administrative policies
is a tax levied on imports that effectively raises
the cost of imported products
tariff
are levied as a fixed charge for each unit
of a good imported – per ton, per car, per foot, etc.
specific tariff
(tariffs) are levied as a proportion of the
value of the imported good (as opposed to its
quantity, weight, etc.) Example might be a $100 on
first $10,000 value, $120 on next $20,000, etc.
Ad valorem tariffs
Why do governments impose tariffs?
increase government revenues
provide protection to domestic producers against foreign
competitors
force consumers to pay more for certain imports
So, tariffs are unambiguously pro-_______ and anti-__________
producer; consumer
and tariffs reduce the overall ________ of the
world economy
efficiency
is a government payment to a domestic
producer
subsidy
Subsidies help domestic producers
compete against low-cost foreign imports
gain access to export markets
typically absorb the costs of subsidies
consumers
is a direct restriction on the quantity of
some good that may be imported into a country
import quota
a hybrid of a quota and a tariff
where a lower tariff is applied to imports within the
quota than to those over the quota
tariff rate quota
are quotas on trade
imposed by the exporting country, typically at the request of the importing country’s government
Voluntary export Restrictions
the extra profit that domestic producers
make when supply is artificially limited by an import quota
quota rent
Who benefits from import quotas and voluntary export restraints?
Import quotas and voluntary export restraints benefit
domestic producers by limiting import competition, but
they raise the prices of imported goods for consumers
demands that some specific fraction of a good be produced domestically
local content requirement
are bureaucratic rules that are designed to make it difficult for imports to enter a country
Administrative trade polices
How do Administrative trade polices hurt consumers?
Deny them access to potentially superior foreign products
selling goods in a foreign market below their cost of production, or selling goods in a foreign market at below their “fair” market value
dumping
Why dump?
- Gets rid of excess production from taking advantage of economies of scale
- Predatory pricing to drive off/kill competitors in a market (Walmart)
antidumping duties, also
known as ___________ may be imposed
countervailing duties
In 1947 through the mid-1990s, the framework for international trade was known as the
GATT (General Agreement on Tariffs and Trade)
Since 1995, the framework for international trade has been known as the
World Trade Organization
The WTO has emerged as an effective
advocate and
facilitator of future trade deals
The WTO is currently focusing on
Anti-dumping policies
Protectionism in agriculture
Protecting intellectual property
Why do governments intervene in trade? (Two arguments)
Political and Economic
concerned with protecting the
interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers)
Political Arguements
concerned with boosting the
overall wealth of a nation (to the benefit of all, both producers and consumers)
Economic Arguments
Political Arguments:
protecting jobs
protecting industries deemed important for national
security
retaliating to unfair foreign competition
protecting consumers from “dangerous” products
furthering foreign policy goals
protecting the human rights of individuals in exporting
countries
Support new industries until established
The infant industry argument
Seek to
establish advantages/dominance in a particular
industry, perhaps an emerging one
Strategic Trade Policy Argument
Either one usually results in some form of
retaliation by other countries;
escalation in responses, and even trade wars
International firms have an incentive to lobby for _____________, and keep protectionist pressures from causing them to have to change strategies
free trade
While there may be __________ benefits to having government protection in some situations, in the _________ these can backfire and other governments can retaliate making it more difficult to construct a globally dispersed production system
short-run; long-run
Trade barriers impact firm strategy
Will you export to a country or manufacture there and
avoid trade issues
Firms can play a role in promoting free trade or trade barriers
Lobbying, filing trade complaints, etc.
the most common
political reason for trade restrictions
protecting jobs and industries
governments protect certain
industries such as aerospace or advanced electronics because they are important for national security
National Security
when governments take, or threaten to take,
specific actions, other countries may remove trade barriers
Retaliation
protecting consumers from
unsafe products is also be an argument for restricting imports
Protecting Consumers
trade policy can be used to support foreign policy objectives
preferential trade terms can be granted to countries that a government wants to build strong relations with
rogue states that do not abide by international laws or norms can be punished
Furthering Foreign Policy Objectives
governments can use trade
policy to improve the human rights policies of trading partners
Protecting Human Rights
Which Economic Argument for government intervention has been accepted as a justification for temporary
trade restrictions under the WTO
infant industry argument
- suggests that in cases where there may be important first mover advantages, governments can help firms from their countries attain these advantages and also suggests that governments can help firms
overcome barriers to entry into industries where foreign firms have an initial advantage
Strategic Trade Policy
Up to the Great Depression most countries had some level of
Protectionism
the _________ Act (1930) -
created significant import tariffs on foreign goods
Smoot-Hawley
GATT’s membership grew from 19 to more than 120 nations
tariff reduction was spread over eight rounds of negotiation
GATT regulations were enforce by a mutual
monitoring system
a
The world trading system came under strain during the
1980s and early 1990s because
Japan’s economic success strained what had been
more equal trading patterns
persistent trade deficits by the U.S caused significant
problems in some industries and political problems for
the government
many countries found that although GATT limited the
use of tariffs, there were many other forms of
intervention that had the same effect that did not
technically violate GATT
The Uruguay Round (1986) focused on
- Services and Intellectual Property
2. The World Trade Organization
The WTO was established as a more effective
policeman of the global trade rules
The WTO encompassed
GATT GATS and TRIPS
Trade issues related to ___________ were emphasized during the Uruguay Round
services and intellectual
property and agriculture
trade theorists believe government intervention in
international trade is justified
New
Some new trade theorists believe that while strategic
trade theory is appealing in theory,
it may not be workable in practice
Two situations where restrictions on trade may be
inappropriate
Retaliation
Domestic Policies
strategic trade policies aimed at establishing
domestic firms in a dominant position in a global industry
are beggar-thy-neighbor policies that boost national
income at the expense of other countries
krugman
A country that attempts to use such policies will probably
provoke
trade war
Governments can be influenced by special interest
groups
a government’s decision to intervene in a market may
appease a certain group, but not necessarily the
support the interests of the country as a whole
a government’s decision to intervene in a market may appease a certain group, but not necessarily the support the interests
of the country as a whole
trade barriers may limit a firm’s ability to
dispersing production activities globally (Which is beneficial to the company)
trade barriers raise the cost
of exporting
quotas limit
exports
firms may have to locate production activities within a country to meet
local content requirements
the threat of future trade barriers can influence
firm strategy
TRIPS obliges WTO members to grant and enforce patents lasting at least _______ and copyrights lasting _________
20 years; 50 years
The Doha talks are focused on what?
cutting tariffs on industrial goods and services
phasing out subsidies to agricultural producers
reducing barriers to cross-border investment
limiting the use of anti-dumping laws
