Chapter 6

Question 1

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

Answer 1

Free Trade

Question 2

While many nations are ___________ committed to free
trade, they tend to intervene in international trade to
protect the interests of politically important groups

Answer 2

nominally

Question 3

There are seven main instruments of trade policy, often

referred to as

Answer 3

tariff (TBs) and non-tariff barriers (NTBs)

Question 4

What are the seven TBs and NTBs?

Answer 4

1. Tariffs
2. Subsidies
3. Import quotas
4. Voluntary export restraints
5. Local content requirements
6. Antidumping policies
7. Administrative policies

Question 5

is a tax levied on imports that effectively raises

the cost of imported products

Answer 5

tariff

Question 6

are levied as a fixed charge for each unit

of a good imported – per ton, per car, per foot, etc.

Answer 6

specific tariff

Question 7

(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.

Answer 7

Ad valorem tariffs

Question 8

Why do governments impose tariffs?

Answer 8

increase government revenues
provide protection to domestic producers against foreign
competitors
force consumers to pay more for certain imports

Question 9

So, tariffs are unambiguously pro-_______ and anti-__________

Answer 9

producer; consumer

Question 10

and tariffs reduce the overall ________ of the

world economy

Answer 10

efficiency

Question 11

is a government payment to a domestic

producer

Answer 11

subsidy

Question 12

Subsidies help domestic producers

Answer 12

compete against low-cost foreign imports

gain access to export markets

Question 13

typically absorb the costs of subsidies

Answer 13

consumers

Question 14

is a direct restriction on the quantity of

some good that may be imported into a country

Answer 14

import quota

Question 15

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

Answer 15

tariff rate quota

Question 16

are quotas on trade

imposed by the exporting country, typically at the request of the importing country’s government

Answer 16

Voluntary export Restrictions

Question 17

the extra profit that domestic producers

make when supply is artificially limited by an import quota

Answer 17

quota rent

Question 18

Who benefits from import quotas and voluntary export restraints?

Answer 18

Import quotas and voluntary export restraints benefit
domestic producers by limiting import competition, but
they raise the prices of imported goods for consumers

Question 19

demands that some specific fraction of a good be produced domestically

Answer 19

local content requirement

Question 20

are bureaucratic rules that are designed to make it difficult for imports to enter a country

Answer 20

Administrative trade polices

Question 21

How do Administrative trade polices hurt consumers?

Answer 21

Deny them access to potentially superior foreign products

Question 22

selling goods in a foreign market below their cost of production, or selling goods in a foreign market at below their “fair” market value

Answer 22

dumping

Question 23

Why dump?

Answer 23

1. Gets rid of excess production from taking advantage of economies of scale
2. Predatory pricing to drive off/kill competitors in a market (Walmart)

Question 24

antidumping duties, also

known as ___________ may be imposed

Answer 24

countervailing duties

Question 25

In 1947 through the mid-1990s, the framework for international trade was known as the

Answer 25

GATT (General Agreement on Tariffs and Trade)

Question 26

Since 1995, the framework for international trade has been known as the

Answer 26

World Trade Organization

Question 27

The WTO has emerged as an effective

Answer 27

advocate and | facilitator of future trade deals

Question 28

The WTO is currently focusing on

Answer 28

Anti-dumping policies Protectionism in agriculture Protecting intellectual property

Question 29

Why do governments intervene in trade? (Two arguments)

Answer 29

Political and Economic

Question 30

concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers)

Answer 30

Political Arguements

Question 31

concerned with boosting the | overall wealth of a nation (to the benefit of all, both producers and consumers)

Answer 31

Economic Arguments

Question 32

Political Arguments:

Answer 32

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

Question 33

Support new industries until established

Answer 33

The infant industry argument

Question 34

Seek to establish advantages/dominance in a particular industry, perhaps an emerging one

Answer 34

Strategic Trade Policy Argument

Question 35

Either one usually results in some form of | retaliation by other countries;

Answer 35

escalation in responses, and even trade wars

Question 36

International firms have an incentive to lobby for _____________, and keep protectionist pressures from causing them to have to change strategies

Answer 36

free trade

Question 37

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

Answer 37

short-run; long-run

Question 38

Trade barriers impact firm strategy

Answer 38

Will you export to a country or manufacture there and | avoid trade issues

Question 39

Firms can play a role in promoting free trade or trade barriers

Answer 39

Lobbying, filing trade complaints, etc.

Question 40

the most common | political reason for trade restrictions

Answer 40

protecting jobs and industries

Question 41

governments protect certain | industries such as aerospace or advanced electronics because they are important for national security

Answer 41

National Security

Question 42

when governments take, or threaten to take, | specific actions, other countries may remove trade barriers

Answer 42

Retaliation

Question 43

protecting consumers from | unsafe products is also be an argument for restricting imports

Answer 43

Protecting Consumers

Question 44

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

Answer 44

Furthering Foreign Policy Objectives

Question 45

governments can use trade | policy to improve the human rights policies of trading partners

Answer 45

Protecting Human Rights

Question 46

Which Economic Argument for government intervention has been accepted as a justification for temporary trade restrictions under the WTO

Answer 46

infant industry argument

Question 47

- 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

Answer 47

Strategic Trade Policy

Question 48

Up to the Great Depression most countries had some level of

Answer 48

Protectionism

Question 49

the _________ Act (1930) - | created significant import tariffs on foreign goods

Answer 49

Smoot-Hawley

Question 50

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

Answer 50

a

Question 51

The world trading system came under strain during the | 1980s and early 1990s because

Answer 51

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

Question 52

The Uruguay Round (1986) focused on

Answer 52

1. Services and Intellectual Property | 2. The World Trade Organization

Question 53

The WTO was established as a more effective

Answer 53

policeman of the global trade rules

Question 54

The WTO encompassed

Answer 54

GATT GATS and TRIPS

Question 55

Trade issues related to ___________ were emphasized during the Uruguay Round

Answer 55

services and intellectual | property and agriculture

Question 56

trade theorists believe government intervention in | international trade is justified

Answer 56

New

Question 57

Some new trade theorists believe that while strategic | trade theory is appealing in theory,

Answer 57

it may not be workable in practice

Question 58

Two situations where restrictions on trade may be | inappropriate

Answer 58

Retaliation |
Domestic Policies

Question 59

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

Answer 59

krugman

Question 60

A country that attempts to use such policies will probably | provoke

Answer 60

trade war

Question 61

Governments can be influenced by special interest | groups

Answer 61

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

Question 62

a government’s decision to intervene in a market may appease a certain group, but not necessarily the support the interests

Answer 62

of the country as a whole

Question 63

trade barriers may limit a firm’s ability to

Answer 63

``` dispersing production activities globally (Which is beneficial to the company) ```

Question 64

trade barriers raise the cost

Answer 64

of exporting

Question 65

quotas limit

Answer 65

exports

Question 66

firms may have to locate production activities within a country to meet

Answer 66

local content requirements

Question 67

the threat of future trade barriers can influence

Answer 67

firm strategy

Question 68

TRIPS obliges WTO members to grant and enforce patents lasting at least _______ and copyrights lasting _________

Answer 68

20 years; 50 years

Question 69

The Doha talks are focused on what?

Answer 69

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