Trade Agreements and Protection: Basics

Question 1

What are five types of protection?

Answer 1

Tariff
Quota
Subsidy
Local content rules
Export incentives

Question 2

What are the effects of a tariff?

Answer 2

Higher domestic prices
Increased government revenue
Fewer imports

Question 3

What are the effects of a subsidy?

Answer 3

Lower domestic prices
Increased government spending
Fewer imports

Question 4

What are the effects of a quota?

Answer 4

Higher domestic prices
No impact on government budget
Fewer imports

Question 5

What are the effects of local content rules?

Answer 5

Higher domestic prices
No impact on government revenue
Fewer imports

Question 6

What is the benefit of increasing the number of countries involved in a trade agreement?

Answer 6

More countries that can specialise in producing their comparative advantage, leading to increased efficiency and trade

Question 7

What are the costs of increasing the number of countries involved in a trade agreement?

Answer 7

1) Takes longer to negotiate
2) Reduced sovereignty

Question 8

What is meant by the idea that ‘signing a multilateral trade agreement can reduce sovereignty’?

Answer 8

A country gives up some control (sovereignty) over its laws when it signs an international agreement.

The more countries that are involved in negotiations, the less control the country will have over the final requirements of the agreement.

Question 9

What is an example of a monetary union?

Answer 9

The EU

Question 10

What are TWO examples of a trade bloc?

Answer 10

The EU
ASEAN

Question 11

What is ASEAN?

Answer 11

The Association of South-East Asian Nations – a trade bloc comprising 10 countries including Singapore and Malaysia, but NOT Australia

Question 12

What are 3 multilateral trade agreements that Australia is part of?

Answer 12

APEC
RCEP
CPTPP

Question 13

What is RCEP?

Answer 13

The Regional Comprehensive Economic Partnership - a multilateral trade agreement between the 10 ASEAN countries, plus Australia, China, Japan, South Korea and New Zealand

Question 14

What are 2 bilateral trade agreements that Australia is part of?

Answer 14

ChAFTA (with China)
ANZCERTA (with New Zealand)

Question 15

What is the role of the WTO?

Answer 15

1. Provide a forum for global free trade negotiations
2. Provide tribunals to enforce trade agreements

Question 16

What is the role of the International Monetary Fund?

Answer 16

Role is to maintain the stability of global financial system

Question 17

How does the IMF maintain the stability of the global financial system?

Answer 17

• Provides loans to governments close to defaulting
• Loans come with strict requirements on policies the country must implement (to reduce the risk of defaulting again)

Question 18

What is the role of the World Bank?

Answer 18

Provides loans to developing countries for development projects, such as infrastructure, health, and the environment

Question 19

What is the role of the United Nations in the global economy?

Answer 19

Where countries gather to address global problems, such as human rights, global poverty, the environment, and crises.

Has set Sustainable Development Goals for 2030

Question 20

What is the OECD?

Answer 20

A research body to promote policies to improve economic growth and living standards for advanced economies

Question 21

What are the G7/8 and G20?

Answer 21

Forums for governments of large economies to coordinate responses to economic and other political issues.

The G7/8 includes 7 large economies (or 8 with Russia), and the G20 includes the largest 20 economies in the world

Question 22

How does the IMF help to improve global economic growth?

Answer 22

1) They help governments continue to pay for basic services (e.g. welfare, police) when they are close to defaulting - preventing a further drop on aggregate demand and economic activity

2) They ensure foreign lenders get repaid, thus preventing a potential financial crisis (where banks lose their investments and are unable to repay their customers or make any new loans)