week 14 module Flashcards
-Many nations are nominally committed to free trade but they tend to intervene in international trade to protect the interests of politically important groups.
Political Reality of International Trade
concerned with protecting the interests of certain groups within a nation, often at the expense of other groups.
Political arguments
Typically concerned with boosting the overall wealth of nation.
Economic arguments
give the 7 Instrument of Trade Policy
Tariffs
Subsidies
Import quotas
Voluntary export restraints
Local content requirements
Administrative polices
Antidumping policies
taxes imposed by governments on imported (sometimes on exports) goods
tariffs
These are fixed taxes
levied on a per-unit basis.
specific tariff
These tariffs are calculated
as a percentage (%) of the
value of the imported or
exported goods.
% Ad valorem tariff
Government payment to domestic producers.
subsidies
refer to direct financial assistance provided by a government to its domestic industries. These aim to boost the competitiveness of local businesses by reducing their production costs.
cash grants
refer to financial assistance provided by a government to its domestic industries in the form of loans with favorable interest rates.
low-interest loans
also known as tax incentives or tax
deductions, refer to reductions in the
amount of taxes that individuals or
businesses owe to the government.
tax breaks
it is when the government intentionally buys goods or services from domestic industries to support and stimulate the local economy.
Government purchases
restrict the quantity of some good that may Be imported into a country.
import quota
a hybrid of a quota and a tariff
where a lower tariff is applied
to imports within the quota
than to those over the quota.
tariff rate quotas
the extra profit that producers
make when supply is artificially
limited by an import quota.
quota rent
quotas on trade imposed by the exporting country,
typically at the request of the importing country’s government.
Voluntary Export Restraints (VERs)
demand that some specific fraction
of a good be produced domestically.
local content requirements
bureaucratic rules designed to make it difficult for imports to enter a country - policies hurt consumers by limiting choice.
administrative policies
(aka countervailing duties)
anti-dumpind policies
Designed to punish foreign firms that engage in dumping and protect domestic producers from “unfair” foreign competition.
Anti-dumping policies
What Is the Political Reality of International Trade? (module)
__________ occurs when governments do not attempt to _________ what citizens can buy from another country or what they can sell to another country. While many nations are ________________ to free trade, they tend to intervene in international trade to protect the interests of politically important groups.
Free trade
restrict
nominally committed
Why Government intervenes?
There are two types of arguments for government intervention: political and economic.
political arguments
economic arguments
are concerned with protecting the interests of certain groups
within a nation (normally producers), often at the expense of other groups (normally consumers).
political arguments
are typically concerned with boosting the overall wealth of
a nation (to the benefit of all, both producers and consumers).
economic argument
taxes imposed by governments on imported (sometimes on exports) goods, and they are often used as a tool for regulating trade, protecting domestic industries, or generating revenue for the government.
tariff
There are two main types of tariffs:
specific tariff
ad valorem tariff
These are fixed taxes levied on a per-unit basis. For example, a specific tariff might impose a fixed amount of money per ton or per unit of a particular imported or exported product.
specific tariff
These tariffs are calculated as a percentage (%) of the value of the imported or exported goods. Ad valorem tariffs can vary based
on the value of the goods, and they are commonly used in international trade.
ad valorem tariff
Government payment to domestic producers. It can take many forms: cash grants, low-interest loans, tax breaks, equity participation, and government purchases.
subsidies
It aim to achieve lower costs compete against cheaper imports, gain export markets, increase domestic employment, and help local producers achieve first-mover advantage in emerging industries.
subsidies
restrict the quantity of some good that may be imported into a country.
import quota
a hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota.
tariff rate quotas
- the extra profit that producers make when supply is artificially limited by an import quota.
Quota ren
quotas on trade imposed by the exporting country, typically at the request of the importing country’s government.
Voluntary Export Restraints (VERs)
demand that some specific fraction of a good be produced domestically.
local content requirements
bureaucratic rules designed to make it difficult for imports to enter a country -polices hurt consumers by limiting choice.
Administrative Polices
aka countervailing duties - designed to punish foreign firms that engage in dumping and protect domestic producers from “unfair”
foreign competition.
anti dumping policies
selling goods in a foreign market below their costs of production, or selling goods in a foreign market below their “fair” market value.
dumping
producers use profits from their home markets to subsidize prices in a foreign market to drive competitors out of that market, and later raise prices.
may be predatory behavior
What are the Political Arguments for Government Intervention?
- protecting jobs
- Protecting industries deemed important for national security
- Retaliating to unfair foreign competition
- Protecting consumers from “dangerous” products
- Furthering the goals of foreign policy
- Protecting the human rights of individuals in exporting countries
the most common political reason for trade restrictions. This often results from political pressures by unions or industries that are “threatened” by more efficient foreign producers, and have more political clout than consumers
protecting jobs
industries like aerospace or electronics are often protected because they are deemed important for national security.
Protecting industries deemed important for national security
- when governments take, or threaten to take, specific actions, other countries may remove trade barriers. If threatened governments do not back down, tensions can escalate and new trade barriers may be enacted.
Retaliating to unfair foreign competition
limit “unsafe” products.
Protecting consumers from “dangerous” products
preferential trade terms can be granted
to countries that a government wants to build strong relations with. Trade policy can also be used to punish rogue states.
Furthering the goals of foreign policy
through trade policy actions. The decision to grant China MFN status in 1999 was based on this philosophy.
Protecting the human rights of individuals in exporting countries
What are the Economic Arguments for Government Intervention?
1.____________________________ - an industry should be protected until it can develop and be viable and competitive internationally.
The infant industry argument
- The infant industry argument - an industry should be protected until it can develop and be viable and competitive internationally.
- accepted as a justification for temporary trade restrictions under the ______
WTO
Question: When is an industry “grown up”?
Critics argue that if a country has the potential to develop a ________________________ its firms should be capable of raising necessary funds without additional support from the government.
viable competitive position
- Question: When is an industry “grown up”?
- Critics argue that if a country has the potential to develop a viable competitive position its firms should be capable of raising necessary funds ____________________________from the government.
without additional support
in cases where there may be important first mover advantages, governments can help firms from their countries attain these advantages. - governments can help firms overcome barriers to entry into industries where foreign
firms have an initial advantage.
Strategic trade policy
How Has the Current World Trading System Emerged?
Until the “Great Depression” of the 1930s
How Has the Current World Trading System Emerged?
Until the Great Depression of the 1930s, most countries had some degree of
protectionism ____________________(1930).
-Smoot-Hawley tariff
How Has the Current World Trading System Emerged?
After _____________, the U.S. and other nations realized the value of freer trade. - established the ________________________
WWII
General Agreement on Tariffs and Trade (GATT)
How Has the Current World Trading System Emerged?
- a ___________________ to liberalize trade
multilateral agreement
How Has the Current World Trading System Emerged?
In the ________and early ________ protectionist trends emerged
1980s
1990s
How Has the Current World Trading System Emerged?
Japan’s perceived protectionist (______________________) policies created intense political pressures in other countries
neo-mercantilist
How Has the Current World Trading System Emerged?
- persistent trade ______ by the U.S
deficits
How Has the Current World Trading System Emerged?
The Uruguay Round of ______ negotiations began in ______ focusing on;
- Services and intellectual property
- The World Trade Organization
GATT
1986
going beyond manufactured goods to
address trade issues related to services and intellectual property, and agriculture.
Services and intellectual property
it was hoped that enforcement mechanisms would make the WTO a more effective policeman of the global trade rules. The WTO encompassed GATT along with two sisters’ organizations
The World Trade Organization
The ______ has emerged as an effective advocate and facilitator of future trade deals, particularly in such areas as services.
WTO
So far, the WTO’s policing and enforcement mechanisms are having a ____________. Most countries have adopted WTO recommendations for trade disputes.
positive effect.
What Do Trade Barriers Mean for Managers?
Managers need to consider how trade barriers affect the _______ of the firm and the implications of government policy on the firm.
strategy
What Do Trade Barriers Mean for Managers?
- Trade barriers raise the cost of __________ products to a country.
exporting
What Do Trade Barriers Mean for Managers?
- Voluntary export restraints (VERs) may limit a firm’s ability to serve a country from __________ outside that country.
locations
What Do Trade Barriers Mean for Managers?
- To conform to ______ content requirements, a firm may have to locate more production activities in a given _______ than it would otherwise.
local
market
What Do Trade Barriers Mean for Managers?
*Managers have an _______ to lobby for free trade, and keep protectionist
pressures from causing them to have to change strategies.
incentive
What Do Trade Barriers Mean for Managers?
*Managers have an incentive to lobby for free trade, and keep _________________
pressures from causing them to have to change strategies.
protectionist
