Trade Policies

Question 1

Impact of Trade Policies (4)

Answer 1

Consumers:
-limit amount of available products

Workers:

• Short term: keep/loose of job
• long term: dependence on other markets

Government

Foreign businesses

Question 2

Why is trade not free (name 3)

Answer 2

Taxation	
- National defense	
- Retaliation	
- Infant industry	
- Unemployment	
- Corporate lobbying	
- Human rights, environment	
and	public health

Question 3

Instruments of Trade Policies (6)

Answer 3

• Tariffs
• Subsidies
• Import Quotas and Voluntary Export Constraints
• Local Content Requirements
• Administrative Policies
• Antidumping Duties

Question 4

Tariffs

Answer 4

Higher prices on foreign products so people choose domestic products:
+good for domestic producers
-bad for consumers (less choices)

Question 5

different kinds of tarrifs

Answer 5

specific:
-fixed charge per unit ( e.g. 5$ per product)
ad valorem:
- proportion of the goods value ( e.g. 4%)
compound:
- sepcific + ad valorem

Question 6

What is a harmonized system HS (tariff schedule)?

Answer 6

international nomenclature of WCO for preparation of national tariff conditions; every country has its own terms for different products

Question 7

How many digits has the HS in the USA?

Answer 7

8

Question 8

Subsidies

Answer 8

Direct: 
-Payments to reduce costs	
Indirect:
- Tax breaks	
- Loans	
- Public/private partnerships	
- Insurance
- Efforts to keep currency low

Question 9

Import Quotas and voluntary Export Restraints

Answer 9

Import Quotas:
- Direct restriction on the quantity of a good that can be imported to a country
Voluntary Export Restraints (VER):
- Quota on trade imposed by the exporting country at the request of importing countrys government. (Lobbyism)

–> raises domestic prices of imported goods –> hurt people, helps producers

Question 10

Local Content Requirement

Answer 10

requires some specific fraction of a good to be produced domestically in exchange of lowering or eliminating other trade barriers

• percentage of component parts
• percentage of value of goods

Example: “Buy local” legislation
–> preferences for domestic products (fly american act)
Problem: not always the cheapest choice

Question 11

administrative trade policies

Answer 11

Legal and procedural barriers designed to make difficult

for imports to enter a country (for ex. national security concerns)

Question 12

Antidumping Policies

Answer 12

Dumping:

• selling goods in foreign market below production cost/ below fair market value
• -> Antidumping policies punishs foreign companies for that

Question 13

How should an international business react to trade policies

Answer 13

short term:
-diversify to manage risk
-lobby
long term:
-support World trade organization and regional trade