Chapter 6 Bank

An effective tariff is the sum of the ad valorem tariff plus the specific duty

FALSE

Companies that have integrated their supply chains internationally tend to lobby their home governments for increased protectionist measures.

FALSE

In most cases, trade protectionism makes it easier for a company to buy what it needs and to sell products in global markets.

FALSE

The most common type of tariff is the export tariff

FALSE

Helping a struggling domestic company through import restrictions frequently causes other countries to retaliate.

TRUE

Infant-industry protection requires some segment of the economy to incur the higher costs when local production is inefficient.

TRUE

The argument for using import controls to promote exports is partially premised on the assumption that other countries will remove their import restrictions as a result.

TRUE

The countries most likely to be successful at using trade retaliation are large trading countries

TRUE

The infant-industry argument for trade protection holds that an industry needs government protection from imports until it becomes competitive enough in world markets.

TRUE

The international regulatory situation for trade is becoming more, rather than less, complex.

TRUE

When customs officials set a value on which to place an import tariff, they ordinarily use the declared invoice price unless they doubt its authenticity

TRUE

In addition to protection, tariffs serve to ________.

) generate revenue

All of the following are reasons a country might institute import restrictions to improve its balance of trade position with other countries EXCEPT to ________.

) maintain essential industries

Unlike the infant-industry argument, the industrialization argument for trade protection ________.

) presumes that economic growth will occur even if domestic manufactured prices are not globally competitive

A physician, who is a citizen of and licensed in Country A, meets the professional licensing requirements of Country B. The physician will most likely ________.

have to get a work permit from Country B's immigration authorities to work in Country B

Country X is withholding goods from international markets in an attempt to raise prices abroad. Such actions will be most effective for Country X if the nation ________.

holds a monopoly on the product or resource

The most common type of tariff is the ________ tariff

import

Unemployed workers are most apt to form a pressure group to support ________.

import restrictions

Which term refers to restricting imports in order to boost domestic production and consumption of goods that would otherwise be imported?

import substitution

A possible drawback to the essential industry argument for import protectionism is ________.

in times of military emergency, almost any product could be considered essential

Imports can stimulate exports by ________.

increasing foreign income

Companies with ________ would most likely oppose global protectionist measures

internationally integrated supply chains

A problem that can arise in using trade protectionism to develop international competitiveness for a domestic industry is that ________.

it is difficult to identify industries that have a high probability of reaching competitiveness

The rationale for the infant-industry argument for trade protection is that ________.

it takes time for an industry to become competitive in world markets, so protection is needed to help this industry pass through the critical period

A voluntary export restriction (VER) refers to ________.

limits placed on exports by a government of an exporting country at the request of the government of an importing country

The U.S. automobile industry has attempted to counter import competition in all the following ways EXCEPT ________.

lobbying for customs deposits so that importers' costs would be raised

According to the optimum tariff theory, a foreign producer will most likely ______

lower its export prices if the importing country imposes an import tax on its products

Countries most likely establish export restrictions to ________.

raise prices in foreign markets

Tied aid requires a recipient to ________.

spend the funds in the donor country

Which of the following is NOT causing greater complexity in the regulation of trade?

growth in export tariffs

Why do developing countries sometimes impose import restrictions to increase their levels of industrialization?

Countries with a large manufacturing base generally have higher per capita incomes than do countries without such a base. Moreover, a number of countries, such as the United States and Japan, developed an industrial base while largely preventing competition from foreign-based production. Many developing countries use protection to increase their level of industrialization because of industrial countries' economic success and experience. Specifically, they believe: a. surplus workers can more easily increase manufacturing output than they can increase agricultural output. b. inflows of foreign investment in the industrial area will promote growth. c. prices and sales of traditional agricultural products and raw materials fluctuate too much, harming economies that depend on too few of them. d. markets and prices for industrial products will grow faster than those for agricultural products. Diff: 3

People who argue for lifting the U.S. trade embargo with Cuba claim all of the following EXCEPT which one?

Cuba has largely become a market economy already

What is the difference between import substitution policies and export-led development policies?

Developing countries promote industrialization by restricting imports in order to encourage local production for local consumption goods which they formerly imported. This is known as import substitution. If the protected industries do not become efficient, consumers may have to support them by paying higher prices or higher taxes. In contrast to import substitution, some countries have achieved rapid economic growth by promoting export industries, an approach known as export-led development. These countries try to develop industries for which export markets should logically exist. Industrialization may result initially in import substitution, yet export-led development of the same products may be feasible later.

Why are offsets considered protectionist measures

Exporters must often find markets for goods outside their lines of expertise

Countries typically establish export restrictions to encourage the development of substitute products.

FALSE

Every time countries enter a new trading agreement, service trade tends to grow more rapidly than merchandise trade.

FALSE

Export controls are highly effective for digital products, such as computers, TVs, and cameras

FALSE

Export prices of primary products fluctuate less than export prices of manufactured products.

FALSE

Export-led development refers to the off-shoring of production.

FALSE

Home country consumers are typically active in preventing their domestic companies from dumping products into foreign markets.

FALSE

Import trade controls, but not export trade controls, can be used as a weapon of foreign policy

FALSE

On average, workers displaced by imports earn higher wages in the new jobs they accept.

FALSE

The argument for using protectionism to bring about industrialization in developing countries presumes that gains will occur because the industry will become internationally competitive. Answer: FALSE

FALSE

The comparable access argument for import restrictions is a more valid economic argument for products using small-scale technology than for products requiring substantial economies of scale to be competitive.

FALSE

The essential-industry argument holds that industries with potential export capabilities should be protected.

FALSE

The group most likely to become involved in disputes concerning trade protectionism is consumers.

FALSE

The purpose of "Made in" labels on imported products is to enable countries to keep records of the origin of imports.

FALSE

Many companies and industries argue that they should have the same access to foreign markets as foreign industries and companies have to their markets. In a short essay, discuss this issue of "comparable access" or "fairness."

From an economic standpoint, comparable access argues that in industries in which increased production will greatly decrease cost, either from scale economies or learning effects, producers that lack equal access to a competitor's market will have a disadvantage in gaining enough sales to be cost-competitive. The argument for equal access also is presented as one of fairness. There are at least two arguments against this fairness doctrine. First, there are advantages of freer trade, even if imposed unilaterally. Restrictions may deny one's own consumers lower prices. Second, governments would find it cumbersome and expensive to negotiate separate agreements for each of the many thousands of different products and services that might be traded.

Which of the following statements most likely undermines the infant-industry argument?

High tariffs to prevent foreign competition increase government revenues in the protected country

Which of the following is a problem with the infant-industry argument for protection

If the industry does not lower costs sufficiently to be competitive, it becomes a formidable pressure group for continued protection.

What are the disadvantages of import restrictions in regards to creating domestic employment opportunities?

One problem with restricting imports in order to create jobs is that other countries might retaliate with their own restrictions. New import restrictions by a major country have usually brought quick retaliation, sometimes causing more job losses than gains in industries protected by the new restrictions. Even if no country retaliates, the restricting country will gain jobs one place and lose them somewhere else, such as in import-handling jobs. Imports may also help create jobs in other industries, and these industries may form pressure groups against protectionism.

All of the following are potential problems of using export controls EXCEPT which one?

Prices go up in the country imposing the controls

People who argue for keeping the U.S. trade embargo with Cuba claim all of the following EXCEPT which one?

Removal of the embargo will cause much more Cuban immigration to the United States

What is the primary difficulty associated with dismantling developed countries' agricultural subsidies?

Rural areas in the United States, the European Union, and Japan are disproportionately represented in their governments.

A quota is a quantitative limit on the amount of a product that can be traded

TRUE

Agricultural subsidies by developed countries impede the competitiveness of agricultural exports by developing countries.

TRUE

At present there is little reciprocal recognition of professional licensing among countries

TRUE

Governments sometimes prohibit operations of private companies, foreign or domestic, in some sectors because they feel these services should not be sold at a profit.

TRUE

Import substitution is a program promoting local production of products that would otherwise be imported.

TRUE

The lowering of a foreign producer's price as a result of an imposed import tax is known as an optimum tariff.

TRUE

The term protectionism, when applied to international trade, refers to governmental restrictions and incentives to affect trade flows.

TRUE

When a company is seeking protection from imports, it can usually improve its chances of getting that protection if it allies with most of the companies in the industry.

TRUE

Which of the following hypothetical examples would be a restriction on the import of services

The U.S. restricts foreign companies from carrying cargo between two U.S. cities

Explain the rationale for and problems with making the infant-industry argument work as intended

The infant-industry argument holds that a government should guarantee an emerging industry a large share of the domestic market until it becomes efficient enough to compete against imports. Developing countries still use this argument to support their protectionist policies. The infant industry argument is based on the logic that although the initial output costs for an industry in a given country may be so high as to make it noncompetitive in world markets, over time the costs will decrease to a level sufficient to achieve efficient production. The cost reductions may occur for two reasons: As companies gain economies of scale and employees become more efficient through experience, total unit costs drop to competitive levels. Although it is reasonable to expect costs to decrease over time, they may not go down enough, which poses two problems for protecting an industry. First, governments have difficulty identifying those industries that have a high probability of success. If infant-industry protection goes to an industry that does not reduce costs enough to make it competitive against imports, chances are its owners, workers, and suppliers will constitute a formidable pressure group that may prevent the importation of a cheaper competitive product. Second, even if policymakers can ascertain which industries are likely to succeed, it does not necessarily mean that companies in those industries should receive governmental assistance. Entrepreneurs may incur the costs and reap the benefits instead. For the infant-industry argument to be fully viable, future benefits should exceed early costs.

The relationship between import substitution policies and export-led development policies is best characterized by which of the following?

The two are hard to distinguish because production under import substitution may eventually be exported.

In nearly half the cases in which U.S. firms have requested protection from imports, one or more U.S. companies in the industry opposed the protection. What was the reason for opposing protection?

They believed that they could compete against global and domestic rivals.

All of the following are generally true about trade-displaced workers EXCEPT which one?

They move abroad to take new jobs

Most countries have agreed on how to assess values when their customs agents levy tariffs. Which of the following best expresses this agreement?

They should use the declared invoice price unless they doubt its authenticity

Why should managers have an understanding of trade protectionism

Trade protectionism affects a company's ability to sell abroad and ability to compete at home

What is the most likely reason that consumers rarely protest import restrictions that raise the prices they pay for a specific product?

Typically, although the added costs to consumers for a given product are high in aggregate, they are fairly trivial for most individual consumers.

The U.S. catfish industry successfully petitioned the U.S. government to require that catfish varieties imported from Vietnam be labeled as tra, basa, or pangasius. This is an example of which of the following?

a nontariff barrier

Export-led development refers to ________.

a program to promote industries with export potential

In international trade, what is a quota?

a quantitative limit on the amount of a product that can be imported or exported

An import license is ________.

a requirement that permission be secured from governmental authorities before importation can be undertaken

It is sometimes contended that by imposing import controls a country might be able to increase its exports. This contention is premised on ________.

getting other countries to maintain or relax their current import restrictions instead of escalating restrictions in a trade war

Trade protectionism will most likely affect which aspect of a company's operations?

acquiring foreign supplies

Which term refers to a tariff or duty assessed as a percentage of an item's value?

ad valorem duty

Advocates of the comparable access argument for trade protection primarily assert that domestic industries ________.

are entitled to the same access to foreign markets as foreign industries have to their markets

Successful trade retaliation is most likely achieved ________.

by a large trading country

The government of Country X imposes import restrictions on steel to help the domestic steel industry in depressed areas. What is the most likely result of such restrictions?

damaging other industries in Country X

Developing countries have sometimes adopted policies to shift people out of agriculture and into industry by protecting manufactured production. One of the problems they have encountered is that ________.

demand for social and political services has increased excessively in the cities

Exporting below cost or below the home country price is called ________.

dumping

The U.S. catfish industry petitioned the U.S. government for increased taxes on imported Vietnamese fish, claiming that the fish were being sold below the cost of production. The U.S. catfish industry was accusing the Vietnamese fish industry of ________.

dumping

Country X wants to eliminate its balance of trade deficit while simultaneously keeping prices low for imported essentials. Which of the following methods would most likely achieve these dual objectives?

enacting selective import restrictions

There are several reasons for a company to sell products abroad at either below cost or below the price in the home country. Which of the following is one of these reasons?

encouraging foreign consumers to try new products

An import tariff may be protective ________.

even though the importing country does not produce the product

Export restrictions have a tendency to ________.

favor domestic consumers

Defense arguments are sometimes used to prevent exports to unfriendly countries. This runs the risk of the targeted country ________.

finding alternative sources of supply

Countries sometimes fear that foreign producers are pricing their exports artificially low. This fear is most likely based on the assumption that ________.

foreign producers will charge exorbitant prices after putting competitors out of business

The term protectionism when applied to international trade refers to ________.

governmental restrictions and competitive support actions to affect trade flows

Assume a government is considering import restrictions on sugar because sugar imports are hurting the domestic industry. Which of the following groups is LEAST likely to speak out on the subject?

sugar consumers

In most cases, which type of government protection assistance is most controversial?

tariffs

An argument against limiting exports to unfriendly countries is that ________.

the costs of the sanctions are borne by innocent people rather than by leaders

Assume a government places restrictions on a specific product from a specific foreign country. What would be the government's most likely concern about the foreign country's response?

the foreign country restricting its own imports

Terms of trade refers to ________.

the quantity of imports that a given quantity of a country's exports can buy

Which of the following best explains why the experience of countries such as Taiwan and South Korea are used to support export-led development policies?

their rapid economic growth

The fact that there are few reciprocal agreements among countries on the licensing of professionals most likely means that ________.

there is an effective limitation on trade in services

What is the main motive for countries' protection of their film/cinema industries

to maintain their cultural sovereignty

Managers should understand the effect of trade protectionism because ________.

trade protectionism may make it difficult for a company to buy what it needs from foreign suppliers

The industrialization argument for trade protection in developing countries is based on the assumption that ________.

unemployment and underemployment exists in rural areas, so little agricultural output is lost as people move into industrial jobs