Econ 7

Subsidies lower production costs to help producers

1. Compete against foreign imports 2. gain export markets

Tariffs have two purposes

1. Protect domestic goods from foreign competition 2. Produce Revenue for the government

Export Tariffs (less common) but have 2 purposes

1. Raise Revenue for government 2. Political reasons

smoot-hawley Act

1930s aimed at avoiding rising unemployment by protecting domestic industries and diverting consumer demand away from foreign products caused other countries to raise their own tariff barriers

Administrative Trade Policies

buraucratic rules designed to make it difficiult for imports to enter a country

Forms of subsidies

cash grants, low interest loans, tax breaks, government equity participation in domestic firms

Anti Dumping Poiceis

designed to punish foreign firms that engage in dumping - protect domestic producers from unfair foreign competition

local content requirement

developing countries to shift from manufacturing base from the simple assembly to the manufacturing of parts

Import Quota

direct restriction on the quantity of some good that may be imported into a country

Commerce Department and International Trade Commission

domestic producer files petition with either of these if it believes that foreign firm is dumping protection in the US

Urguguay Round

extended GAAT's rules to cover trade in services reduce agriculture subsidies protect intellectual property strengthen GAAT's monitoring and enforcement

Quota Rent

extra profit that producers make when supply is artificially limited by an import quota

Free Trade

gov doesn't try to restrict what its citizens can buy from or sell to another country

strategic trade policy

gov. can help raise national income by ensuring that the domestic firms in an industry gain 1st MA as opposed to forigen ones - adv. for gov. to intervene in an industry by helping domestic firms overcome the barriers to entry that were created by foreign firms with 1st MA

Subsidy

goverment payment to a domestic producer

Krugman and special intrest groups

governments aren't acting with national interest strategic trade policy is captured by special interest groups

Countervailing Duties/antidumping duties

imposed by the two government agencies on offending foreign imports tariff

Specific Tariffs

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

Ad valorem tariffs

levied as a proportion of the value of the imported good

Tariff Rate Quota

lower tariff rate is applied to imports within the quote than those over the quota

Economic arguments

protect infant industry strategic trade policy

political arguments for intervention

protect jobs from unfair comeption nationol security reatiliation protecting consumers from unsafe products forgien policy objectives protect human irhgts

Voluntary Export restraint (VER)

quota on trade imposed by the exporting country, typically at the request of the importing country's government

local content requirement

requirement that some specific fraction of a good be purchased domestically can be physically or value terms

Dumping

selling goods in a foreign market at below their costs production or their "fair" market value

Buy American Act

specifies government agencies give preference to American products when putting contracts for equipment out to bid unless the foreign producers have a significant price advantage

Krugman argues

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 Strategic trade policy leads to trade war

tariff

tax levied on imports (or exports)