Chapter 7
If a nation protects an industry because it believes that there are positive externalities in the production process, it is asserting that the free market will
produce less than is optimal from society's point of view
The biggest flaw in the logic of the labor argument is the failure to consider
the differences in national productivity levels.
Given that tariffs and quotas cost consumers and that they are a grossly inefficient means for creating or preserving jobs, citizens nevertheless allow these policies to exist because
**********-costs of tariffs/quotas are diffused thru-out entire nation while the benefits are concentrated ********-incentives to organize around the issues of trade policy are asymmetric -they know that petitioning the gov't to do the right thing is futile ********only
The national security argument
-1/4 main arguments that is NON-ECONOMIC in nature
High income countries have tariff policies that generally have
higher tariff and quota protection on products in agriculture, and clothing and textiles.
American and Japanese trade barriers have the largest effect upon
low-income nations
Two industries most commonly receiving protection
-agriculture and clothing
If an industry has technological externalities, an infant industry policy is justified
-if the industry is experiencing falling costs -if the protection offered is temporary
Labor vs. INFANT INDUSTRY
-is the more sophisticated of the two arguments for protection -holds some validity as an argument if the industry experiences declining costs -is mainly associated with the tariff policies of developing nations
Infant industry argument
-one of the four main arguments that is economic in nature
MERCANTILISM IS NOT ONE OF THE FOUR
1. retaliation argument 2. revenue argument 3. infant industry argument 4. national security argument (5. labor argument)
A country may choose to levy a countervailing duty on imported products if the imported products
A. have been dumped. B. include the intellectual property of domestic firms without the permission of the domestic firms. C. benefit from subsidies. Your answer is correct. D.All of the above.
The labor argument for tariffs, argues that it is unfair for a country to face imports from countries that have lower wages. The problem(s) with this argument
A. ignores fact that cross country wage differences reflect productivity differences B. it ignores the fact that quotas are an expensive method of saving jobs
Labor vs. infant industry arguments LABOR
Labor industries: -fail to consider productivity differences b/w nations -as an employment policy, is inferior to broader macroeconomic policies
problem of collective action
The notion that trade policy often imposes costs on large numbers of people, and benefits only a few is explained by
As a retaliatory measure against other nations, tariffs are
a. never justified b/c they make the retaliating nation less efficient b. tariffs are warranted if they have the result of forcing nations with tariffs to drop them c. tariffs justified if they prevent firms in nations with tariffs from achieving an unfair advantage, particularly in industries with significant scale economies (answer D all of the above)
When a country must resort to tariffs for protection, the result is considered a "second best" solution, which means the tariff is not the most efficient action. This result occurs because
a. there are always deadweight losses to market interventions b. some countries have no other alternatives but to impose tariffs c. there are many reasons why a tariff is justified d. none of the above
Dumping occurs when
an exporter sells a product in a foreign market below its domestic cost.
A country, such as the U.S., is allowed to use anti-dumping duties if the price a foreign exporter
charges for the products it sells in the US is less than the price charged in the exporters market, and the US firms are harmed by import of the product.
Automobiles
does not receive significant protection from either/both US and Japan