Chapter 6 - The Political Economy of International Trade

Question 1

Restrict import of goods and services into their nation while adopting policies that promote exports to increase Balance of Payment.

Answer 1

Government intervention

Question 2

7 instruments for government intervention in trade:

Answer 2

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

Question 3

Oldest and simplest instrument of trade policy.

Answer 3

Tariff

Question 4

Tax on goods shipped internationally.

Answer 4

Tariff

Question 5

5 types of tariff:

Answer 5

1) Import and Export tariff
2) Transit tariff
3) Specific tariff
4) Ad valorem duty
5) Compound duty

Question 6

A tax levied on imports or exports of a country.

Answer 6

Import and Export tariff

Question 7

A tax levied on goods passing through the country.

Answer 7

Transit tariff

Question 8

Unit of a good imported a tariff based on the number of items being imported usually a fixed charge for each.

Answer 8

Specific tariff

Question 9

A tariff based on a percentage of the value of imported goods.

Answer 9

Ad valorem duty

Question 10

A tariff consisting of both a specific and ad valorem duty.

Answer 10

Compound duty

Question 11

5 reasons for tariff:

Answer 11

1) To retaliate against dumping
2) To protect domestic producers and local industry
3) To raise revenue
4) To reduce export from a sector often for political reasons
5) To make trade fairer

Question 12

The selling of goods at a price below cost or below that in the home country to gain unfair market share.

Answer 12

Dumping

Question 13

Government payment to a domestic producer.

Answer 13

Subsidies

Question 14

Forms of subsidies:

Answer 14

1) Cash grants
2) Low-interest loans
3) Tax breaks
4) Government equity participation in domestic firms

Question 15

2 biggest beneficiaries of subsidies:

Answer 15

1) Auto
2) Agriculture

Question 16

An extension of New trade theory favours subsidies to help domestic firms achieve dominant positions in industries.

Answer 16

Strategic Trade Policy

Question 17

A direct restriction on the quantity of some good that may be imported into a country.

Answer 17

Import Quota

Question 18

Usually enforced by issuing import licenses to a group of individuals or firms.

Answer 18

Import Quota

Question 19

A quota on trade imposed by the exporting country typically at the request of the importing country’s government.

Answer 19

Voluntary Export Restraint

Question 20

Demands that some specific fraction of a good be produced domestically.

Answer 20

Local Content Requirement

Question 21

Specifies that government agencies must give preference to American products when putting contracts for equipment.

Answer 21

Buy America Act

Question 22

Bureaucratic rules designed to make it difficult for imports to enter a country.

Answer 22

Administrative Policies

Question 23

Designed to punish foreign firms that engage in dumping - objective is to protect domestic producers from “unfair” foreign competition.

Answer 23

Antidumping Policies

Question 24

6 political arguments for government intervention:

Answer 24

1) Protecting jobs and industries
2) National security
3) Retaliation
4) Protecting consumers
5) Furthering foreign policy objectives
6) Protecting environment/human rights

Question 25

2 economic arguments for government intervention:

Answer 25

1) Infant industry argument
2) Strategic trade policy

Question 26

Where new manufacturing industries cannot initially compete with well-established industries in developed countries.

Answer 26

Infant Industry Argument

Question 27

Strategic trade policies aimed at establishing domestic firms in a dominant position in a global industry.

Answer 27

Retaliation and Trade War

Question 28

Governments do not always act in the national interest when they intervene in the economy.

Answer 28

Domestic Politics

Question 29

A constraint upon a firm’s ability to disperse its productive activities.

Answer 29

Trade Barriers

Question 30

Where firms can play a role in promoting free trade.

Answer 30

Policy implications