Chapter 6: Governmental Influence on Trade Flashcards
What is protectionism?
Governmental restrictions and supper to influence international trade competitiveness
What is the role of stakeholders?
Likely to speak out if affected by trade regulations
What is the role of consumers?
Buy best product they can find for the price, often without knowing or caring about its origin
What are potential implications of import restrictions?
- Retaliation by other countries
- Decrease export jobs because price increases for components
- Decrease export jobs because of lower incomes abroad
Are import restrictions effective to reduce unemployment? Why or why not?
No - better method is through fiscal and monetary policies
What is the infant-industry argument?
Government should shield emerging industry fro foreign competition by guaranteeing it a large share of domestic market until it can compete on its own
Why does production become more competitive over time?
- Increased economies of sale
- Greater worker efficiency
What are risks in determining infant industries to support?
- Determining probability of success
- Who should bear the costs? (Consumers? Taxpayers?)
What assumptions do developing countries use when implementing trade protections to spur local industrialization?
- Surplus workers can increase manufacturing output more easily than agricultural output
- Inflows of foreign investment in industrial sector promote growth
- Prices and sales of ag products/raw materials fluctuate widely
- Markets for industrial products grow faster than markets for commodities
- Industrial growth reduces imports and/or promotes exports
- Industrial activity helps nation-building process
What does the industrialization argument presume?
That unregulated importation of lower-priced manufactured goods prevents development of domestic industry
What are two main problems caused by shifting people out of agriculture?
- May lose safety net of their extended families
- Improved ag practices may be better means of achieving economic success than drastic shift to industry
What are possible implications of a country shifting from agriculture to industry?
- Demands on social and political services in cities increase
- Output increases if marginal productivity of ag workers is low
- Development possibilities in ag sector may be overlooked
How can import restrictions increase FDI?
Foreign companies may invest to produce in restricted area
Does a greater dependence on manufacturing guarantee diversification of export earnings? Why or why not?
No - population of developing economies might be small, so the dependence might shift from 1-2 commodities to 1-2 manufactured products
What is export-led development?
promoting development of industries with export potential
How does industrialization affect nation building?
- Build infrastructure
- Advance rural development
- Boost workforce skills
What are two options that can affect a country’s competitive position broadly?
- Depreciation or devaluing its currency
- Relying on fiscal and monetary policy to bring about lower price increases in general than those in other countries
What is the comparable access argument?
Countries and industries argue that they are entitled to same access to foreign markets as foreign industries and companies have to theirs
Why is the comparable access argument impractical?
- May lead to restrictions that deny home consumers lower prices
- Government cannot negotiate and monitor separate agreements for the thousands of products and services that are traded
What are two factors that countries must consider when using trade restrictions as a bargaining tool?
- Believability: must have access to alternate sources or consumers must be willing to do without it
- Importance
What is dumping?
Companies export below cost or below home-country price (can build market abroad)
What is the optimum-tariff theory
A foreign producer will lower its prices if the importing county places a tax on its products
What is the essential industry argument?
Governments apply trade restrictions to protect essential domestic industries during peacetime so the country is not dependent on foreign supplies during war (U.S. Committee on Foreign Investment)
What are national defense arguments?
Prevent export of strategic good stat might fall into the hands of potential enemies
How do countries extend their spheres of influence to countries in need?
Give aid and credits to (and encouraging imports from) countries that join a political alliance or vote a preferred way within international bodies
How do some countries preserve national culture with trade?
Prohibit exports of art and historical items deemed part of their national heritage
What is a tariff?
Tax levied on a good shipped internationally- may be levied on goods entering, leaving, or passing through a country
What are the different types of duties on tariffs?
- per unit (specific duty)
- value basis (ad valorem duty
- both (compound duty)
What are subsidies?
Form of direct assistance to company o boost its competitiveness
What is tied aid/loans?
Require that recipient spend funds in donor country
What is a quota?
Limits the quantity of a product that can be imported or exported in a given timeframe, usually 1 year
What is a Voluntary Export Restraint (VER)?
Country A requests (tells) Country B to restrict its exports to Country A (or else…)
What is an embargo?
A quota that prohibits all trade, used as an economic means to achieve political goals
What is “Buy Local” legislation?
Government purchases give preference to domestically made goods and may legislate percentage of domestic content
What is foreign-exchange control?
Requires an importer to apply to a government agency to secure the foreign currency to pay for the product
What are countertrade or offsets?
Government requirements in importing country whereby the exporter must provide additional economic benefits such as jobs or technology as part of the transaction
What are a company’s options when it faces possible losses because of import competition?
- Move operations to another country
- Concentrate on market niches that attract less international competition
- Adopt internal innovations (innovations, superior products)
- Try to get governmental protection
