Chapter 7 - Key Terms & Objectives

regional or bilateral trade agreements

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Which of the following is true with respect to multinational firms?

Because of their pivotal role in international trade, firms can and do exert a strong influence on government policy toward trade.

The _____ benefits inefficient farmers and the politicians who rely on the farm vote, but not consumers in the European Union, who end up paying more for their foodstuffs.

Common Agricultural Policy (CAP)

Smoot-Hawley Act

Enacted in 1930 by the U.S. Congress, this act erected a wall of tariff barriers against imports into the United States.

An import quota is a specific tax levied on imports.

False

Economic arguments for intervention are concerned with protecting the interests of certain groups within a nation, often at the expense of other groups, or with achieving some objective that lies outside the sphere protecting the environment or human rights.

False

In the 1986 Uruguay Round, GATT members sought to write rules for promoting which of the following?

GATT's monitoring and enforcement mechanisms

subsidy

Government financial assistance to a domestic producer

strategic trade policy

Government policy aimed at improving the competitive position of a domestic industry and/or domestic firm in the world market

General Agreement on Tariffs and Trade (GATT)

International treaty that committed signatories to lowering barriers to the free flow of goods across national borders and led to the WTO

tariff rate quota

Lower tariff rates applied imports within the quota than those over the quota.

Dumping is viewed as a method by which firms unload excess production in foreign markets.

True

Most economists would probably argue that the best interests of international business are served by

a free trade stance.

local content requirement (LCR)

a requirement that some specific fraction of a good be produced domestically.

The lack of progress in the Doha Round negotiations has resulted in countries

forging ahead with their own bilateral agreements.

A subsidy is a

government payment to a domestic producer.

Ad valorem tariffs are

levied as a proportion of the value of the imported good.

The threat of antidumping action affects a firm by

limiting its ability to use aggressive pricing to gain market share in a country.

A lobbyist from California argues that the U.S. government needs to protect the U.S. semiconductor industry from foreign competition. She argues that semiconductors are now such important components of defense products that it would be dangerous to rely primarily on foreign producers for them. This is an example of a(n) _____ argument for government intervention.

political

Objective 2: Understand why governments sometimes intervene in international trade.

tbd

Objective 3: Summarize and explain the arguments against strategic trade policy.

tbd

countervailing duties

Antidumping duties.

Governments always act in the national interest of their countries when they intervene in the economy.

False

Objective 4: Describe the development of the world trading system and the current trade issue.

tbd

Objective 5: Explain the implications for managers of developments in the world trading system.

tbd

free trade

the absence of barriers to the free flow of goods and services between countries

The GATT was a multilateral agreement whose objective was to liberalize trade.

True

The strategic trade policy arguments of the new trade theorists suggest an economic justification for government intervention in international trade.

True

Objective 1: Identify the policy instruments used by governments to influence international trade flows.

Trade policy uses seven main instruments: tariffs, subsidies, import quotas, voluntary export restraints, local content requirements, administrative policies, and antidumping duties. Tariffs are the oldest and simplest instrument of trade policy. They are also the instrument that the GATT and WTO have been most successful in limiting. A fall in tariff barriers in recent decades has been accompanied by a rise in nontariff barriers, such as subsidies, quotas, voluntary export restraints, and antidumping duties.

quota rent

Extra profit producers make when supply is artificially limited by an import quota.

The infant industry argument relies on an assumption that firms can make efficient long-term investments by borrowing money from the domestic or international capital market.

False

Tariff barriers raise the costs of exporting products to a country (or of exporting partly finished products between countries). Which of the following is a likely consequence of these barriers?

This may put a firm at a competitive disadvantage to indigenous competitors in that country.

import quota

A direct restriction on the quantity of a good that can be imported into a country.

voluntary export restraint (VER)

A quota on trade imposed from the exporting country's side, instead of the importer's; usually imposed at the request of the importing country's government.

ad valorem tariff

A tariff levied as a proportion of the value of an imported good.

tariff

A tax levied on imports

dumping

Selling goods in a foreign market for less than their cost of production or below their "fair" market value.

_____ suggests that a government should use subsidies to support promising firms that are active in newly emerging industries.

Strategic trade policy

specific tariff

Tariff levied as a fixed charge for each unit of good imported.

administrative trade policies

Administrative policies, typically adopted by government bureaucracies, that can be used to restrict imports or boost exports.

antidumping policies

Designed to punish foreign firms that engage in dumping and thus protect domestic producers from unfair foreign competition.

infant industry argument

New industries in developing countries must be temporarily protected from international competition to help them reach a position where they can compete on world markets with the firms of developed nations.

_____ argues that a strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry is a beggar-thy-neighbor policy that boosts national income at the expense of other countries.

Paul Krugman

The WTO argues that by removing all tariff barriers and subsidies to agriculture, which of the following would occur?

Global economic growth would rise.