GlobalBusiness CH6

Question 1

world trade output percentages?

Answer 1

80% merchandise

20% services

Question 2

how many jobs in Canada are effected by trade

Answer 2

20%

Question 3

why should there be government intervention in trade

Answer 3

governments intervene by restricting imports of good and services into their nation well adopting policies that promote exports

Question 4

motive for government intervention in trade

Answer 4

protect domestic producers and jobs from foreign competition. increasing foreign market for products of domestic producers

Question 5

6 instruments of trade policy

Answer 5

1. Tariffs
2. subsidies
3. import quotas and voluntary export restraints
4. local content requirements
5. administrative policies
6. anti dumping policies

Question 6

specific tariffs

Answer 6

fixed charge for each unit of good

Question 7

Ad Valorem Tariff

Answer 7

as proportion of the value of imported goods

Question 8

what are import quotas

Answer 8

restrictions to the quantity of a good that may be imported. usually enforced by import licenses

Question 9

tariff rate quotas

Answer 9

hybrid of quota and tariff where lower tariff is applied to imports within the quota then those over the quota

Question 10

quota rent

Answer 10

extra profit that producers make when supply is artificially limited by an import quota

Question 11

voluntary export restraints

Answer 11

imposed by exporting county at the request of the import countries governments

Question 12

local content requirement

Answer 12

requirement that a specific fraction of a good be produced domestically (can be physical or measured in value)

Question 13

dumping

Answer 13

selling goods in foreign markets below their cost of production or below their “fair market value”. firms can unload excess products

Question 14

countervailing duties

Answer 14

punish firms that engage in dumping and protect domestic producers from “unfair” foreign competition

Question 15

what are the 6 political arguments for the government to intervene in markets

Answer 15

1. protecting jobs
2. protecting industries
3. retaliation (gov takes of threatens to take specifications as bargaining)
4. protecting consumers
5. furthering foreign policy
6. protecting human rights

Question 16

what are the 2 economic arguments for governments to intervene in the market

Answer 16

1. infant industry (governments should temporarily support new industries until they have grown strong enough to meet foreign competition)
2. strategic trade policy (government can help raise national income when a domestic firm gains first mover advantages –> leads to firms achieving economies of scale

Question 17

what does Paul Krugman argue

Answer 17

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

Question 18

beggar- thy- neighbour policy

Answer 18

one country attempts to fix its economic problems by worsening the economic problems of other counties

Question 19

what did the GATT use “rounds of talk” to do?

Answer 19

gradually reduce trade barriers, mutual tariffs negotiated

Question 20

difference in GATT, GATS and TRIPS

Answer 20

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

Question 21

3 implications of trade barriers for managers

Answer 21

1. constrain firms ability to disperse its productive actives to most efficient areas
2. voluntary export restrains may limit a firms ability to serve a country from locations outside that country
3. conform to local content requirements, firm may have to locate more production actives in a given market then it would otherwise.