Chapter 6 Summary Flashcards
Explain why Gov’t sometimes intervenes in trade
-Political reasons (protect jobs, preserve national scrutiny, respond to other nations unfair trade policies, gain influence from other nations)
-Economic reasons (protect infant industries from global competition, promote strategic trade)
-Protection of national identity.
Outline the instruments that Gov’ts use to promote trade
Subsidy:
Financial assistance includes cash payments, low-interest loans, tax breaks, and more.
Export financing:
Includes loans at below-market interest rates.
Foreign trade zone (FTZ):
Allows merchandise to pass through a geographic region with lower customs duties (taxes) and/or fewer customs procedures.
Describe the instruments that Gov’ts use to restrict trade
Tariff:
Government tax levied on a product that enters, transits across, or leaves a country.
Quotas:
Restrict the amount of a good that can enter or leave a country during a certain period of time.
Embargo:
Completely bans trade with a country.
Summarize the main features of the Global trading system
The General Agreement on Tariffs and Trade (GATT) treaty promoted free trade by reducing tariffs and nontariff barriers. The Uruguay Round of GATT negotiations then created the World Trade Organization (WTO).
The three goals of the WTO are to help the free flow of trade, to help negotiate further opening of markets, and to settle trade disputes among its members.
A key component of the WTO is the principle of nondiscrimination, called normal trade relations, which requires WTO members to treat all members equally.
