Int bus exam 2 chapter 7

What is one drawback of government intervention in international trade?

Intervention can be dangerous and lead to retaliation efforts.

Why is retaliation by government intervention a risky strategy?

It could result in increased tariff barriers by the country that is being pressured.

The economic prosperity enjoyed by __________ during the 1980s and 1990s strained the world trading system and created the demand for increased protectionist measures.

Japan

Solar Tech Corp., based in Phoenix, believes the ideal way for the United States to respond when foreign competitors are already being supported by government subsidies is not to retaliate but to establish rules that help minimize trade-distorting subsidies. Which theorist does Solar Tech's management agree with?

Krugman

_________ are put in place to make it difficult for imports to enter a country

administrative trade policies

Economic arguments for government intervention in trade are usually concerned with

boosting the overall wealth of a nation

Arguments for international trade typically focus on political and __________ reasons

economic

The Smoot-Hawley Act tried to divert consumer demand away from foreign products by

establishing tariff barriers.

in 1975 OPEC did not allow the export of US crude oil in order to drive up the prices. this is an example of

export ban

During the 1980s and 1990s, trade sanctions were put in place by Western governments against South Africa in response to the apartheid policies in place there. These trade sanctions were a response to

human rights violations.

the group that benefits the most from receiving subsidies is

international organization such as the WTO (world trade org)

one objective of export tariff is to

reduce exports from a sector to ensure sufficient supply

GATS, a sister body of the World Trade Organization, is responsible for extending free trade agreements in what area?

services

A specific tariff is levied as a fixed charge for each unit of an imported good.. t/f

t

Dumping occurs when companies sell goods in a foreign market at below their costs of production.

t

Export tariffs are not as common as import tariffs. t/f

t

Government intervention can be self-defeating because it tends to protect the inefficient rather than help firms become efficient global competitors.

t

Governments can protect consumers from unsafe products by issuing a limit or a ban on such products.

t

Governments sometimes rely on trade policy to try to improve the human rights policies of trading partners.

t

In general, tariff rates on manufactured products tend to be much lower than tariff rates on agricultural products.

t

One of the reasons for the trend toward greater protectionism during the 1980s and 1990s was that many countries found ways to get around GATT regulations.

t

Paul Krugman believed that a trade policy aimed at establishing domestic firms in a dominant position boosts national income but at the expense of other countrie

t

Quota rent refers to the extra profit that producers make when supply is artificially limited by an import quota.

t

The British decision to withdraw from the European Union suggests that there isn't a global consensus on the issue of free trade.

t

The Trump Administration justified tariffs on foreign steel imports in 2018 by saying it was a national security issue.

t

The World Trade Organization's TRIPS agreement focuses on intellectual property rights.

t

The infant industry argument is the oldest economic argument that promotes government intervention.

t

When the government provides a low-interest loan to a failing industry to bolster business, it is an example of a subsidy.

t

the united states has raised the taxes on tomatoes imported from mexico. these taxes are an example of a(n)

tariff

a(n) ____________ is in place when a lower tariff rate is applied to imports within the government quotas than those over the quotas

tariff rate quota

there are seven main instruments used in trade policy with ______ being the oldest and the simplest

tariffs

What is one provision of the Uruguay Round Agreement?

Agricultural subsidies were to be substantially reduced

Which multilateral trade agreement was established under U.S. leadership in 1947, with the objective to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like?

General Agreement on Tariffs and Trade (GATT)

The first official government policy for free trade occurred in which country?

Great Britain

What is the result of the threat of antidumping action?

It limits the ability of a firm to use aggressive pricing to gain market share in a country.

Why did telecommunications companies welcome the telecommunication deal brokered by WTO in 1997?

It offered a greater ability for companies to offer a global, seamless service for all their corporate needs

What is one major advantage the World Trade Organization has over the GATT agreement?

Procedures under the WTO have strict time limits.

how do voluntary export restraints affect prices of goods?

VER's always RAISE the domestic price of imported goods

Krugman advocated that government should help establish the rules of the game that minimize the use of trade-distorting subsidies. Which entity takes on that role?

World Trade Organization

a charge of 16% is levied by the government of a foreign nation on the value of refrigerator and freeze components imported from a neighboring country this results in an increase in the price of those imported appliances for the consumer. this foreign nation is using a(n)

ad valorem tariff

If Switzerland decides it wants to make it difficult for other countries to export cheese to Swiss businesses and creates pasteurization standards that don't exist anywhere else in the world, it would be implementing __________ policies as a way to restrict these imports.

administrative trade

according to the _____________ us government agencies must give preferences to US products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage

buy america act

the us department of education put out a contract for 250000 SmartBoards and the contract stated that preference would be given to bids that declared at least 51 percent of the materials by value in the SmartBoards were produced in the United States. Which legislative act is this stipulation based on?

buy america act

Jenson Electronics believes that a foreign producer of component parts is dumping production in the U.S. market and the company filed a complaint with the government. If the government determines that the complain has merit, which governmental agency may impose an antidumping duty on the foreign producer?

commerce department

One of the reasons why protectionist pressures arose around the world during the 1980s was the

different ways many countries found to get around GATT regulations.

If Italy exports vast quantities of footwear to Germany, selling them at below their costs of production, it would be an example of

dumping

The ultimate purpose of GATT was to

eliminate barriers to free trade.

The Smoot-Hawley Act had a damaging effect on

employment abroad.

one way to ensure that there is sufficient supply of a good within a country is to enact a(n) _______, which discriminates against producers from exporting goods

export tariff

Import tariffs are put in place to increase foreign competition. t/f

f

In most countries, the retail industry tends to be the largest recipient of subsidies.

f

In the Uruguay Round of the WTO, member countries sought to exempt trade in services from GATT rules.

f

Krugman advocated the idea that strategic trade policies can eliminate trade wars.

f

The Smoot-Hawley Act aimed to liberalize trade by eliminating tariffs, subsidies, and import quotas.

f

The threat of antidumping action enhances the ability of a firm to use aggressive pricing to gain market share in a country.

f

Under a tariff rate quota, a higher tariff rate is applied to imports within the quota than those over the quota

f

One of the main reasons why many economists remain critical of the infant industry argument is its reliance on the assumption that

firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets.

The WTO rules say that a country can impose antidumping duties on

foreign goods being sold cheaper than at home.

The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment, something GATT had never done. Two of the first industries targeted for this reform were

global telecommunication and financial services industries

The focus of the TRIPS agreement is to

have common international rules for intellectual property rights.

a tiny south pacific island nation produces large quantities of honey based products. to protect this industry the island government mandates that only designated trading companies can import the crop each of which is allocated the right to import a maximum number of pounds of honey each year. this is an example of an

import quota

some countries limit the amount of sugar that can be imported. this restriction is called a(n)

import quota

The principal function of the trade sanctions the United States has in place against Cuba is to

impoverish Cuba to lead to the downfall of the communist government.

Indonesia might have a potential comparative advantage in manufacturing textiles but is unable to compete with established textile manufacturing in Japan, at least for the near future. Indonesia could claim the

infant industry argument

Many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with well-established industries in developed countries. This demonstrates the

infant industry argument.

for years the world used a small nation in central america as a place to assemble goods and benefits from inexpensive labor. the nation decided to shift its base from simple assembly to a full fledged manufacture of components and finished goods. It introduced a policy that stated 65% of the value of a product must be produced locally. This is an example of a(n)

local content requirement

on track limited has an order to sell 50,000 pieces of fitness equipments to brazil but the brazilian government stipulated that 35% of the component parts of the equipment must be produced in Brazil. this stipulation is an example of a(n)

local content requirement

A major reason why many economists remain critical of the infant industry argument is because it

makes the domestic industry inefficient

President Trump has voiced his opposition to many free trade deals. Because of this, some say that he maintains a(n) __________ view on trade.

mercantilist

Bilateral voluntary export restraints, or VERs, circumvented GATT agreements, because

neither the importing country nor the exporting country complained to the GATT bureaucracy for it to take action

Paint products containing lead are banned from entering the United States. This ban is in place to

protect consumers from unsafe products.

Ultimately, antidumping policies are put in place to

protect domestic producers from unfair foreign competition

Paul Krugman believed that a country that attempts to use strategic trade policy to establish a domestic firm in a dominant position in a global industry, is most likely to

provoke retaliation.

domestic producers experience limited import competition when a VER is in place. as a result these producers make extra profit because supply is artificially limited by the import quota. this extra profit is called

quota rent

CoverColor makes high-end hair color for women. This hair color is manufactured and patented in France. Manufacturers in Indonesia create counterfeit CoverColor hair color and sell it in local markets at nearly similar prices to the original CoverColor hair color sold in other countries. This lack of intellectual property protection is like to result in

reduction in the export opportunities for CoverColor hair color in Indonesia.

Another basis for Krugman's argument is that strategic trade policy can be captured by __________, which will distort the policy so it benefits their own needs.

special-interest groups

a nation that imposes a fixed charge of 3$ per barrel of oil imported into the country is relying on which instrument of trade?

specific trade

According to __________, a government should use subsidies to support promising firms that are active in newly emerging industries.

strategic trade policy

in some years the US government has paid soybean formers an additional 1.65 on every label of soybeans they sell. this money is an example of

subsidy

After the Great Depression, there was a favorable shift in the U.S. government toward free trade.

t

Alexander Hamilton promoted the idea that government should support a new industry with government intervention tactics until the industry is strong enough to face international competition

t

Antidumping actions seem to be concentrated in certain sectors of the economy such as basic metal industries (e.g., aluminum and steel), chemicals, plastics, and machinery and electrical equipment.

t

south American nation imposes an as valorem tariff of 10% on 1 million tons of wheat imports after which an out-of-quota tariff of 80% is applied. what trade policy instrument is this nation using

tariff rate quota

for many years there have been limits set on the amount of sugar that foreign producers can sell in the US market. this is mandated by a

tariff rate quota system

following the global financial downturn in 2008-2009 some developed nation subsidized automobile makers to help them survive the economic climate. one negative consequences of this action was that

the companies had an unfair competitive advantage in the global industry

A bound tariff rate is

the highest rate that can be charged.

Dumping takes place when foreign producers

unload excess production of a good in foreign markets

A loophole in antidumping laws that is being exploited by many countries to pursue protectionism is the

vague definition of what constitutes "dumping."

if a country is experiencing a surge of construction machinery from a trading partner it might ask that country to set a limit on how much it can export. this limit is know as a

voluntary export restraint (VER)