Keep IT Moving Flashcards
WHAT do Trade restrictions such as tariffs and import quotas represent?
A subsidy paid by domestic consumers to domestic producers of the duty-burdened commodities
NOTE: The long-term results are a reduction in trade and misallocation of resources to less efficient industries
WHAT is “Vertical Integration?”
WHEN a company acquires control through ownership of its suppliers
i.e. Corner gas station acquires control through ownership of the gas distributor
HOW is the value of the U.S. dollar in relation to other foreign currencies determined?
BY the forces of supply and demand on the foreign exchange markets
HOW? - Exchange rates are determined by the forces of supply and demand on the exchange markets
WHAT is Repatriation?
The return to the home country of income earned by a domestic firm in a foreign country
NOTE: A firm must obtain permission from the currency exchange authorities to repatriate earnings and investments
WHAT is the purpose of Countervailing duties?
IT is a mechanism used to offset the effect of low priced imported goods if those goods were produced in a foreign country with the aid of a government subsidy
WHAT Act/ Law provides an exemption for the U.S. Antitrust law?
THE Export Trading Company Act of 1982
i.e. IT permits competitors to form export trading companies without regard to U.S. antitrust legislation
WHAT is “Horizontal Merger?”
A merger between companies in the same industry
WHAT is “Dumping?”
An unfair trade practice that violates international agreements
It occurs when a firm charges a price:
(1) Lower than in its home market; or
(2) Less than the cost to make the product
Note: Dumping may be done to penetrate a market
WHAT is Foreign-Exchange Control?
Exchange controls that limit foreign currency transactions and set exchange rates
The purpose is to limit the ability of a firm to pay domestic currency to foreigners
WHAT is one requirement of the Domestic Content Rule?
THAT at least a portion of any imported product be constructed from parts manufactured in the importing nation
i.e. Parts can be produced using idle capacity and then sent to a labor-intensive country for final assembly
WHAT are tariffs?
THEY are consumption taxes designed to restrict imports
i.e. a consumption tax on an imported good
NOTE: Governments raise tariffs to discourage consumption of imported products
WHAT is a “Trigger-Price” Mechanism?
A price mechanism that automatically imposes a tariff barrier against unfairly cheap imports by levying a duty (tariff) on all imports below a particular reference price
i.e. the price that “triggers” the tariff
WHAT is the premise of protectionism using the strategic trade policy argument?
THE risk of domestic product development should be reduced
i.e. It contends that a government should use trade barriers strategically to reduce the risk of product development borne by domestic firms
WHAT is a Quota?
A restriction on the quantity of a good which may be imported
WHAT do Import Quotas do?
THEY Improve the balance of payments in the short run
How - By setting fixed limits on particular imported products, e.g., French wine
NOTE: In the short run, import quotas will help a country’s balance of payments position by increasing domestic employment
