Chapter 8- Gov Policy and Int Trade

Question 1

why gov intervene in int trade

Answer 1

• political arguments
• economic arguments

Question 2

political arguments

Answer 2

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

Question 3

economic arguments

Answer 3

• concerned with boosting the overall wealth of a nation (promoting GDP)
• benefits both producers and consumers

Question 4

Political- arguments why gov intervene in markets

Answer 4

1.) protecting jobs (the most common reason for trade restrictions- threatened by more efficient foreign producers)

2.) protecting industries deemed important for nation security
3.) retaliation for unfair foreign competition
4.) protecting consumers from dangerous products
5.) further the goals of foreign policy- build strong relations or punishment
6.) protecting the human rights of individuals

Question 5

economic (strategic)- arguments why gov intervene in markets

Answer 5

• The infant industry argument: an industry should be protected until it can develop and be viable and competitive internationally
  - snowflakes: when countries govs protect industries within a country and don’t allow to compete, snowflakes are creates which is industries that are not able to compete on the global stage
  - assumption around economies of scale
• strategic trade policy- first mover advantages- think the new trade theory- the world market will profitably support only a few firms
  - govs can help domestic firms overcome barriers to entry into industries where foreign firms have an initial advantage advantage
  
  • boeing have limited marketplace (only a few people buying jets)

Question 6

how do govs intervene

Answer 6

• tariffs
• subsidies
• import quotas and voluntary export restraints
• export tariffs and bans
• local content requirements
• administrative policies
• antidumping policies

Question 7

tariffs (most popular taxes)

Answer 7

• taxes that govs apply to imports
• these help to protect domestic producers
• not good for consumers bc we absorb the cost
• level playing field for domestic producers by raising price of a good

Question 8

specific tariffs

Answer 8

levied as a fixed charge- for each unit of a good imported example $3 per barrel of oil

Question 9

ad valorem tariffs

Answer 9

levied as a proportion of the value of the imported good

Question 10

subsidies

Answer 10

gov payments to domestic producers
- can help domestic producers compete against low-cost foreign imports
- consumers typically absorb the costs of subsidies
- typically used in agriculture
- subsidies give. farmers extra money for their crops and guarantee a “price floor”
- challenges: could hurt poor countries since they cannot pay farmers subsidies or support agriculture

Question 11

import quotas

Answer 11

restriction on the quantity of goods that may be imported into the country
- more restrictive than tariffs bc it limits products- may drive demand and prices up

Question 12

voluntary export restraints (VER)

Answer 12

quotas on trade imposed by the exporting country (typically at the request of the importing country’s gov)

• ex: in 1979 in US, gas lines so long, US went to Japan asking to voluntarily agree to ship cars annually to US

Question 13

import quotas and voluntary export restraint:

Answer 13

• benefit domestic producers
• raise the price of imported goods

Question 14

local content requirements.

Answer 14

demand that some specific fraction of a good to be produced domestically
- benefit domestic produces
- consumers face higher prices
- generally benefits domestic producers
- if good is imported, some of the production done in that country to protect workers etc

administrative policies: bureaucratic rules designed to make it difficult for imports to enter a country

Question 15

antidumping policies

Answer 15

punish foreign firms that engage in dumping protect domestic producers from unfair foreign competition- predator practice
- selling goods below cost of production
- dumping in another country for cheaper

Question 16

dumping

Answer 16

selling goods in a foreign market below their costs of production, or selling goods in a foreign market below their fair market value

Question 17

World trade organization (WTO)

Answer 17

• has emerged as an effective advocate and facilitator of future trade deals (especially in such areas as services)
• 159 members in 2013
• so far, WTOs policing mechanisms are having a positive effect
• most countries have adopted WTO recommendations for trade disputes

Question 18

T/F- Tariffs are generally pro-producers and anti-consumers

Answer 18

True
(tariff protects domestic producers cuz charges taxes on competing imports of another country but at the cost of consumers)

Question 19

which of the following is a economic reasons for gov to intervene in markets

Answer 19

1.) protect domestic jobs
2.) provide subsidies to farmers
3.) aid infant industries deemed important in the national economy
4.) tariffs provide important gov. revenues
ANSWER: 3.) aid infant
(1 and 2 are political)