International Business- Chapter 7: Government Policy and International Trade

What are the two components of strategic trade policy?

- Governments should subsidize promising domestic firms in emerging industries. - Governments should intervene to assist firms in overcoming barriers to entry created by foreign firms due to first-mover advantages.

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.

Local content requirement (LCR)

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

Company ABC in Scotland exports a pound of cheese to the US for $100. Based on the value of the cheese, the US places a 20% tax on it. What type of tariff is this?

Ad valorem

Which policy is intended to protect domestic producers from foreign competitors who sell goods in foreign markets below their costs of production?

Antidumping policy

Antidumping policies

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

Tariff rate quota

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

Dumping

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

During the 1970s, Congress did not allow US industries to export crude oil production. This action is an example of an export______.

ban

Based on the theories of Ricardo and Smith, the consequences of free trade include ______ economic gains in terms of economic growth and wealth creation. Multiple choice question.

dynamic

Goods that are taxed as they ship out of a country have a(n) ______ tariff.

export

As noted in the text, in the past, the US government has tried to convince the Chinese government to enforce its ______ laws by threatening punitive trade sanctions.

intellectual property

What is considered the most common political argument for government intervention in foreign trade?

protecting jobs and industries

What are two ways a government uses intervention in trade as a foreign policy instrument?

-pressure or punish "rogue states" -grant preferential trading terms to countries it wants to build relations with

Export ban

A policy that partially or entirely restricts the export of a good

Special tariff

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

Ad valorem tariffs

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

Import tariff

A tax levied on imports of goods or services

Export tariff

A tax placed on the export of a good.

Administrative trade policies

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

How did the Chinese government respond when the U.S. government threatened to impose 100% tariffs on a range of Chinese imports unless it imposed tighter regulations on intellectual property?

China agreed to tighter intellectual property regulations.

Quota rent

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

True or false: GATT has NOT recognized the infant industry argument as a legitimate reason for protectionism.

False

______ trade is the economic policy of not discriminating against exports to or imports from foreign countries.

Free

Subsidy

Government financial assistance to domestic producer

Which country is pointed to as the master of administrative trade policies?

Japan

Many Western countries imposed trade sanctions against ______ during the 1980s and 1990s to encourage the country to improve human rights policies.

South Africa

______ permit a specific quantity of imported goods to enter the country under a reduced rate while those exceeding the quantity are charged at a higher rate.

Tariff rate quotas

True or False: The United States has imposed trade sanctions on other countries in order to protect and promote human rights.

True

True or false: If Italy places a fixed charge of $5 for every unit of rice imported, that $5 is an example of a specific tariff.

True

True or false: To limit imports over quota, tariff rate quotas would be used for agricultural products to limit the amount entering a country.

True

The infant industry argument for trade intervention states that developing countries need to support new industries until they are strong enough to______.

compete globally

In 2003, Japan decided to ban imports of beef from America because of the threat of mad cow disease. This ban was implemented to directly protect______.

consumers

For national security reasons, the __ industry is often protected by the national government.

defense

At the end of the fiscal year, Jack's company sells their bicycles in Thailand at below what it costs to produce the bikes in order to unload excess inventory. This is an example of______.

dumping

When manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production, as a way to get rid of excess product, it is called______.

dumping

Quota rent provides producers with ______.

extra profit

A consequence of subsidies paid to companies during difficult economic times is______.

giving recipients an unfair competitive advantage

A(n)______ is a type of trade restriction that sets a physical limit on the quantity of a product that can be imported into the country in a set period of time.

import quota

What are three main instruments of trade policy?

import quotas subsidies voluntary export restraints

A tariff is a tax levied on______.

imports or exports

When governments intervene in foreign trade, they often claim they are protecting ______ from unfair foreign competition.

industries

The oldest argument for government intervention in trade where developing nations must protect their domestic industries until they are ready to compete globally is the ______ argument.

infant industry

Evan works in a country in which the government has stated that 45% of all goods must be produced domestically. What type of requirement does this country have in place?

local content requirement

In order to win a contract from Mexico, QVB Autos Manufacturing must make 65% of the component parts for their automobiles in Mexico. This is an example of a______.

local content requirement

Governments occasionally protect certain industries, like defense-related industries, for______ reasons.

national security

Import quotas are based on the ______ of a good.

quantity

When supply of a product is artificially limited by an import quota, a producer receives extra profit that is known as ______.

quota rent

A tax on imports that is levied as a fixed charge per unit of an imported good is called a(n) ______ tariff.

specific

An advocate of the strategic trade policy argument would agree that a government should use______ to help promising businesses that are active in emerging industries.

subsidies

Taxes placed on imports to protect domestic producers from foreign competition and to produce revenue for the government are ______.

tariffs

Which instrument of trade policy has been in use the longest?

tariffs

By limiting or banning certain products through regulations, governments can protect consumers from products that are______.

unsafe

The trade sanctions on Iraq that were imposed in 1991 after the Gulf War are an example of ______.

using trade policy to punish rogue states

Ad valorem tariffs are based on the______ of a product.

value

A self-imposed trade restriction on the quantity of a good that the exporting country is allowed to export to another country is called a(n) ______.

voluntary export restraint

Japan imposed a quota on auto exports into the US as a result of pressure from the American government. This action is an example of a(n)______.

voluntary export restraint

Governments implement ______ trade policies that are designed to make it difficult for imports to enter a country.

administrative

What industry tends to benefit the most from subsidies in most countries?

agriculture

Sometimes governments pay subsidies to help companies survive challenging economic climates. In effect, these companies receive ______.

an unfair competitive advantage

Sergei believes that a Japanese-based company is selling digital cameras well-below market costs in the United States and thereby gaining all of the business. He plans to report this to the Commerce Department who can examine the case based on US ______ policies.

antidumping

Subsidies are a form of payment that is provided by______.

the government

The infant industry argument has potential negative consequences, including ______.

causing infant industries to lack efficiency