Week 5 Flashcards
Tariff
Specific tariff
Ad valorem tariff
General Agreement on Tariffs and Trade (GATT)
Created in 1947 by 23 countries
World Trade Organization (WTO) & its three major principles
Created in January 1995
- Reductions of barriers to trade
- Nondiscrimination, often called the most-favored nation (MFN) principle
- No unfair encouragement for exports
Small country
Nation is a competitive “price-taker” in the world markets for the products we trade.
The price that the country must pay the foreign sellers is not much affected by how much the small country imports of the product.
Consumption effect
Loss to consumers in the importing nation based on the reduction in their total consumption of the good
Production effect
The extra cost of shifting to more expensive home production
Effective rate of protection
The percentage by which the entire set of a nation’s trade barriers raises the industry’s value added per unit of output
Monopsony power
Monopsony power exists when a single buyer or an association of buyers can dictate the prices they pay to suppliers, or control other aspects of the relationship that exists between themselves and their suppliers.
Large country
Involved in the setting of the price, thus affecting the world price of a good it imports by imposing a tariff.
Terms-of-trade effect
the ratio of the international prices of our exports to the international prices of our imports.
Nationally optimal tariff
The tariff that creates the largest net gain for the country imposing it.
Three main conclusions on tariffs
- A tariff almost always lowers world well-being
- A tariff usually lowers the well-being of each nation, inclusing the nation imposing the tariff
- A tariff helps those groups tied closely to the production of import substitutes, even when the tariff is bad for the nation as a whole
Producer surplus
Amount that producers gain from being able to sell goods at the going market place
Consumer surplus
Amount that consumers gain from being able to buy a good at the going market price
One-dollar, one-vote metric
Every dollar of gain or loss is just as important as every other dollar of gain or loss, regardless of who the gainers or losers are.
Strategic trade policy
example: Airbus and Boeing subsidies.
These subsidies form a government policy helping its own firm’s strategy to win the game and claim the prize (in Boeing, Airbus example, 100 of economic profit)
Two forms of strategic trade policy
- Subsidizing
- Strategic dumping: aiming to increase the market share, to optimise the volume of their production or to maximise profits through price discrimination.
Katzenstein
“Small states in world markets” (1985)
Traits of the democratic corporatism in the postwar period
- Ideology of social partnership expressed at the national level
- relative centralized and concentrated system of interest groups
- Voluntary and informal coordination of conflicting objectives through continuous political bargaining
Threefold scheme of dominant political forms of contemporary capitalism
- Liberal countries with ad hoc protectionist policies
- Statist countriespolicies pursuing structural economic changes
- Democratic corporatism as small states depend on world markets which makes protectionism unviable
Small states and their view on no other option than free trade
- protectionism would decrease competitiveness of exported products
- retaliation by other less vulnerable states
- protectionist policies set bad precedent in domestic policies
Katzenstein’s small states in world markets
1985
Norway, Sweden, Denmark, the Netherlands, Belgium, Switzerland and Austria
Political strategy of the small states
Katzenstein, 1985
industrial adaptation combining liberalisation with domestic compensation
