ECON 340 EXAM II

In the past two decades, non-tariff trade barriers have gained in importance as protectionist devices. What are the major non-tariff trade barriers?

Nontariff trade barriers include import quotas, voluntary export agreements, subsidies, buynational policies, product and safety standards, and content requirements.

Would a tariff imposed on U.S. oil imports promote energy development and conservation for the United States?

Our trade model predicts that by forcing up the price of oil in the United States, domestic production would be encouraged, while domestic consumption would be discouraged.

What would be the likely effects of export restraints imposed by Japan on its auto shipments to the United States?

Same general answer as Question 12. The distribution of the revenue effect tends to accrue to foreign automakers.

What methods do customs appraisers use to determine the values of commodity imports?

Two commonly used valuation concepts used by customs appraisers are the free-on-board technique and the costinsurancefreight technique.

Under what conditions does a nominal tariff applied to an import product overstate or understate the actual, or effective, protection afforded by the nominal tariff?

When material inputs or intermediate products enter a country at a low duty while the final imported product is protected by a high duty, the nominal tariff rate on the final product overstates the effective rate of protection. The opposite also applies.

What is meant by the terms bonded warehouse and foreign-trade zone? How does each of these help importers mitigate the effects of domestic import duties?

A bonded warehouse is a storage facility for imported goods; it allows imported goods to be put into storage without the payment of duties. Goods may be later sold overseas duty free or withdrawn for domestic sale upon payment of import duties. A foreign trade zone is a site where foreign merchandise can be imported with no import duty; merchandise in the zone can be stored or used in the manufacturing of final products.

Describe a specific tariff, an ad valorem tariff, and a compound tariff. What are the advantages and disadvantages of each?

A specific tariff is expressed as a fixed amount of money per unit of the imported product. An ad valorem tariff is a fixed percentage of the value of the imported product as it enters the country. A compound tariff combines a specific tariff and an ad valorem tariff.

When a nation imposes a tariff on the importation of a commodity, economic inefficiencies develop that detract from the national welfare. Explain.

A tariff detracts from the nation's welfare via its consumption effect and protective effect.

Concerning international dumping, distinguish between the price and cost based definitions of foreign market value.

According to the priced-based definition, dumping occurs whenever a foreign firm sells a product in the importing country's market at a price below that for which the product is sold in the firm's home market. According to the cost-based definition, dumping occurs when foreign merchandise is sold in the domestic market at "less than fair value" (i.e., price is less than average total cost).

Why might firms using U.S. steel lobby against the imposition of quotas on foreign steel sold in the United States?

By contributing to a scarcity of steel in the domestic market, quotas lead to higher steel prices and production costs for domestic steel-using firms. Such cost increases detract from their international competitiveness.

Although tariffs may improve the welfare of a single nation, the world's welfare may decline. Under what conditions would this be true?

By increasing the price of trade goods, tariffs lower the volume of trade. For the world as a whole, there is no favorable termsoftrade effect to offset the trade volume effect.

Less developed nations sometimes argue that the industrialized nations' tariffs structures discourage the less developed nations from the undergoing industrialization. Explain.

Developing countries have argued that industrial countries allow raw materials to be imported at low nominal tariff rates while maintaining high nominal tariff rates on finished products.

A subsidy may provide import-competing producers the same degree of protection as tariffs or quotas but at a lower cost in terms of national welfare. Explain.

Domestic subsidies avoid the deadweight losses due to the consumption effect.

Which of the arguments for tariffs do you feel are most relevant in todays world?

Economists generally contend that most arguments for trade restrictions cannot withstand searching analysis. The infant industry and national security arguments may have some validity, but they must be highly qualified.

Suppose that the production of $1 Million worth of steel in Canada requires $100,000 worth of taconite. Canadas nominal tariff rates for importing these goods are 20% for steel and 10% for taconite. Given this information, calculate the effective rate of protection for Canadas steel industry.

Effective tariff rate equals 21 percent.

A nation that imposes tariffs on imported goods may find its welfare improving should the tariff result in a favorable shift in the terms of trade. Explain.

Given a largecountry model, a country which imposes a tariff on imports finds its terms of trade improving. Should the favorable termsoftrade effect more than offset the deadweight losses resulting from the tariff, national welfare improves.

What factors influence the size of the revenue, protective, consumption, and redistributive effects of a tariff?

In general, the size of the welfare responses to tariffs is determined by the impact of the tariffs on domestic prices and the response of domestic producers and consumers to these price changes.

Which is a more restrictive trade barrier? an import tariff or an equivalent import quota?

Since import quotas directly limit the number of goods that can enter the home nation, they tend to be more restrictive than import tariffs which may be circumvented by foreign producers absorbing the tariff as a lower selling price. During periods of rising domestic demand, quotas hold down imports more effectively than tariffs.

Differentiate among sporadic, persistent, and predatory dumping.

Sporadic dumpingfirms with temporary inventories sell their products overseas at lower prices than at home. Predatory dumpingfirms cut prices overseas to eliminate competitors. Persistent dumpingin an effort to maximize profits, firms continuously sell abroad at lower prices than at home.

Rather than generating tax revenue as do tariffs, subsidies require tax revenue. Therefore, they are not an effective protective device for the home economy. Do you agree?

Subsidies are not free goods since they are financed by taxpayer dollars. In return for granting subsidies, governments often pressure management and labor to adopt measures to lower costs of production so as to become more competitive.

What are some major forms of subsidies that governments grant to domestic producers?

Subsidies include domestic subsidies and export subsidies. Methods used to subsidize producers include tax concessions, low interest rate loans, and loan guarantees.

What impact does the imposition of a tariff normally have on a nations terms of trade and volume of trade?

Terms of trade improve, while trade volume declines.

How does the revenue effect of an import quota differ from that of a tariff?

The revenue effect of a tariff is captured by the government, while a quota's revenue tends to be captured by domestic or foreign firms.

Which tends to result in a greater welfare loss for the home economy: (a) an import quota levied by the home government or (b) a voluntary export quota imposed by the foreign government?

Under an import quota, the distribution of the revenue effect is indeterminate, depending on the relative bargaining power of foreign producers and domestic buyers. Because voluntary export quotas are typically administered from the supply side of the market, the largest share of the revenue effect tends to be captured by foreign exporters.

What is meant by voluntary export restraints, and how do they differ from other protective barriers?

Voluntary export restraints are marketsharing agreements negotiated by producing and consuming countries. Because voluntary export quotas are typically administered from the supply side of the market, the foreign exporter tends to capture the largest share of the quota revenue.