GlobalBusiness CH6 Flashcards
world trade output percentages?
80% merchandise
20% services
how many jobs in Canada are effected by trade
20%
why should there be government intervention in trade
governments intervene by restricting imports of good and services into their nation well adopting policies that promote exports
motive for government intervention in trade
protect domestic producers and jobs from foreign competition. increasing foreign market for products of domestic producers
6 instruments of trade policy
- Tariffs
- subsidies
- import quotas and voluntary export restraints
- local content requirements
- administrative policies
- anti dumping policies
specific tariffs
fixed charge for each unit of good
Ad Valorem Tariff
as proportion of the value of imported goods
what are import quotas
restrictions to the quantity of a good that may be imported. usually enforced by import licenses
tariff rate quotas
hybrid of quota and tariff where lower tariff is applied to imports within the quota then those over the quota
quota rent
extra profit that producers make when supply is artificially limited by an import quota
voluntary export restraints
imposed by exporting county at the request of the import countries governments
local content requirement
requirement that a specific fraction of a good be produced domestically (can be physical or measured in value)
dumping
selling goods in foreign markets below their cost of production or below their “fair market value”. firms can unload excess products
countervailing duties
punish firms that engage in dumping and protect domestic producers from “unfair” foreign competition
what are the 6 political arguments for the government to intervene in markets
- protecting jobs
- protecting industries
- retaliation (gov takes of threatens to take specifications as bargaining)
- protecting consumers
- furthering foreign policy
- protecting human rights
what are the 2 economic arguments for governments to intervene in the market
- infant industry (governments should temporarily support new industries until they have grown strong enough to meet foreign competition)
- strategic trade policy (government can help raise national income when a domestic firm gains first mover advantages –> leads to firms achieving economies of scale
what does Paul Krugman argue
strategic trade policies aimed at establishing domestic firms in a dominant position boost national income at the expense of other countries. concludes that strategic trade policy is almost certain to be special-interest groups which will distort it to their own ends
beggar- thy- neighbour policy
one country attempts to fix its economic problems by worsening the economic problems of other counties
what did the GATT use “rounds of talk” to do?
gradually reduce trade barriers, mutual tariffs negotiated
difference in GATT, GATS and TRIPS
general agreement on tariffs and trade, general agreement on trade in services (extends free trade agreements to services) , agreement on trade and related aspects of intellectual property rights (working to develop common International rules for intellectual property rights
3 implications of trade barriers for managers
- constrain firms ability to disperse its productive actives to most efficient areas
- voluntary export restrains may limit a firms ability to serve a country from locations outside that country
- conform to local content requirements, firm may have to locate more production actives in a given market then it would otherwise.
