Chapter 6 - The Political Economy of International Trade Flashcards
Restrict import of goods and services into their nation while adopting policies that promote exports to increase Balance of Payment.
Government intervention
7 instruments for government intervention in trade:
1) Tariffs
2) Subsidies
3) Import quotas
4) Voluntary export restraints
5) Local content requirements
6) Administrative policies
7) Antidumping policies
Oldest and simplest instrument of trade policy.
Tariff
Tax on goods shipped internationally.
Tariff
5 types of tariff:
1) Import and Export tariff
2) Transit tariff
3) Specific tariff
4) Ad valorem duty
5) Compound duty
A tax levied on imports or exports of a country.
Import and Export tariff
A tax levied on goods passing through the country.
Transit tariff
Unit of a good imported a tariff based on the number of items being imported usually a fixed charge for each.
Specific tariff
A tariff based on a percentage of the value of imported goods.
Ad valorem duty
A tariff consisting of both a specific and ad valorem duty.
Compound duty
5 reasons for tariff:
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
The selling of goods at a price below cost or below that in the home country to gain unfair market share.
Dumping
Government payment to a domestic producer.
Subsidies
Forms of subsidies:
1) Cash grants
2) Low-interest loans
3) Tax breaks
4) Government equity participation in domestic firms
2 biggest beneficiaries of subsidies:
1) Auto
2) Agriculture
An extension of New trade theory favours subsidies to help domestic firms achieve dominant positions in industries.
Strategic Trade Policy
A direct restriction on the quantity of some good that may be imported into a country.
Import Quota
Usually enforced by issuing import licenses to a group of individuals or firms.
Import Quota
A quota on trade imposed by the exporting country typically at the request of the importing country’s government.
Voluntary Export Restraint
Demands that some specific fraction of a good be produced domestically.
Local Content Requirement
Specifies that government agencies must give preference to American products when putting contracts for equipment.
Buy America Act
Bureaucratic rules designed to make it difficult for imports to enter a country.
Administrative Policies
Designed to punish foreign firms that engage in dumping - objective is to protect domestic producers from “unfair” foreign competition.
Antidumping Policies
6 political arguments for government intervention:
1) Protecting jobs and industries
2) National security
3) Retaliation
4) Protecting consumers
5) Furthering foreign policy objectives
6) Protecting environment/human rights
2 economic arguments for government intervention:
1) Infant industry argument
2) Strategic trade policy
Where new manufacturing industries cannot initially compete with well-established industries in developed countries.
Infant Industry Argument
Strategic trade policies aimed at establishing domestic firms in a dominant position in a global industry.
Retaliation and Trade War
Governments do not always act in the national interest when they intervene in the economy.
Domestic Politics
A constraint upon a firm’s ability to disperse its productive activities.
Trade Barriers
Where firms can play a role in promoting free trade.
Policy implications
