Trade Policy Flashcards
What is protectionism and what is the rationale behind it?
Protectionism is a form of government restrictions and incentives that are specifically designed to help a country’s domestic firms compete with foreign competitors at home and abroad. The rationale for such policies can be economic or noneconomic in nature
What is the unemployment argument for government intervention in trade?
Governments often want to have high employment as displaced workers often do not find jobs that provide comparable compensation. Often unemployment benefits must be spent on living expenses nstead of job skill training for a new job. However, to limit imports to increase employment, the cost must still be borne by the government.
What is the infant-industry argument? What are the rationale for this argument and what are the pitfalls?
The infant-industry argument argues for protectionism by stating that a government should shield an emerging industry from foreign competition by protecting it, either in forms of subsidies, tariffs, or quotas. This argument assumes that the infant-industry requires government intervention for the industry to grow. However, it may not be possible for the industry to thrive on its own, regardless on the length of time it is allowed to develop under government protection
What is the industrialisation argument, and how does it differ from the infant-industry argument?
The industrialization argument argues for protectionism by stating that a government should shield an industry from the importation of lower-priced foreign products by protecting it, either in forms of tariffs or quotas. This argument assumes an industry requires protection to bolster local competition. Import restrictions may in fact spur foreign direct investment as firms may invest in manufacturing in a country to avoid these regulations.
What are the pitfalls of the industrialisation argument?
If the industry is not able to grow and compete on the global level, local consumers will face the cost of paying higher prices for those products.
What is the argument for government intervening to manage its economic relationship with other nations?
Governments compares its economic performance to other countries and enact policies to improve its relative position. In this regard, trade control can be used to improve the balance of payments, to gain fair access to foreign markets, to bargain trade agreements, and to control prices. The policies enacted by a government is dependent on its relationship with the other country as well as the other country’s trade practices.
What are four non-economic rationales from intervening in trade?
- Maintaining essential industries
- Practicing acceptable practices abroad
- Maintaining/extending spheres of influence
- Preserving national cultures
What is the difference between a tariff and a quota, and do they produce the same results?
Tariffs add on an additional tax on a product that is imported, and it affects the quantity of imported products indirectly by adding this tax.
A quota puts a hard limit on the quantity of a product that can be imported.
While they do produce similar results, tariffs are more flexible as the quantity that is imported, based on supply and demand, can be affected in the shifts in world price. Quota, on the other hand, puts fixed limit on the quantity that is imported.
What is a subsidy, and how do they affect trade?
Subsidy is a direct assistance by governments to boost competitiveness. There are many different types of subsidies, but the most common types of subsidies are low-interest loans or tax breaks. Essentially, the government is decreasing the cost of production for the firm in order to allow it to compete on the global playing field
What is the role of stakeholders in trade policy?
Stakeholders can be workers, owners, suppliers, local politicians, … those who are most direclty affected tend to be loudest in voicing their concerns, which can affect trade policies put in place
What are 4 economic rationales for governments to intervente in trade?
- Fighting unemployment
- Protecting infant industries
- Developing an industrial base = industrialisation argument
- Economic relationship w other countries
(balance of trade adjustments, comparable access argument)
What is an export tariff?
tariff is collected by exporting country
What is an import tariff?
tariff is collected by importing country
What is a transit tariff?
tariff is collected by a country through which it passes?
What is a specific duty?
when a country assesses a tariff on a per unit basis
