stuwart chapter 7

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

T

GATT (General Agreement on Tariffs and Trade)

international agreement first signed in 1947 aimed at lowering trade barriers

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

F

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/F

F

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

F

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

F

infant industry argument

New industries in developing countries must be temporarily protected from international competition to help them reach a position where they can compete on world markets with the firms of developed nations.

Ad Valorem Tariff

a tariff levied as a proportion of the value of an imported good

quota rent

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

A tariff rate quota provides a lower tariff rate to all imports in a specific industry. imports within the quota. only domestic producers. agricultural products. imports that are over the quota.

imports within the quota.

Tariff Rate Quota

lower tariff rates applied to imports within the quota than those over the quota

Specific Tariff

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

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.

The U.S. Department of Education put out a contract for 250,000 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? Export Administration Act Helms-Burton Act Hawley-Burton Act Buy America Act Volcker Rule

Buy America Act

__________ is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value. Circular trade Subsidy Barter Countertrade Dumping

Dumping

Import tariffs are put in place to increase foreign competition. T/F

F

How did the Smoot-Hawley Act divert consumer demand away from foreign products? It advocated for 50 percent of a product to be made domestically. It decreased the overall wage rate. It increased subsidies to foreign agricultural producers. It extended transportation times and delayed shipments from overseas. It implemented a wall of tariffs.

It implemented a wall of tariffs.

GATS, a sister body of the World Trade Organization, is responsible for extending free trade agreements in what area? services commodities intellectual property agriculture start-up companies

Services

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/F

T

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

T

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

T

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

T

Paul Krugman characterizes strategic trade policy as being similar to the infant industry argument. a boost to national income at the expense of other countries. the closest that countries can get to free trade. a way to reduce the possibility of retaliatory actions by other governments. a way to reduce administrative barriers to trade.

a boost to national income at the expense of other countries.

import quota

a limit on the number of products in certain categories that a nation can import

subsidies

a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.

A charge of 16 percent is levied by the government of a foreign nation on the value of refrigerator and freezer 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) local content tariff. ad valorem tariff. subsidy import quota. antidumping duty.

ad valorem tariff.

Economic arguments for government intervention in trade are usually concerned with protecting the interests of certain consumer groups. protecting the interests of certain producer groups. boosting the overall wealth of a nation. protecting the environment. enhancing human rights.

boosting the overall wealth of a nation.

Antidumping Policies

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

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. opening up of national markets to cheap products from China. fall of the Soviet Union. persistent trade lead taken by the United States. Japanese failure in industries such as automobiles and semiconductors that strained the world trading system.

different ways many countries found to get around GATT regulations.

The Smoot-Hawley Act tried to divert consumer demand away from foreign products by subsidizing domestic businesses. establishing tariff barriers. exporting more products to Europe. demanding local content requirements. creating a trade deal with Canada and Mexico.

establishing tariff barriers.

Some countries have a policy that restricts the export of honey. This is called a(n) antidumping policy. import quota. administrative trade policy. export ban. voluntary export restraint.

export ban.

The __________ argument was proposed by Alexander Hamilton in 1792 and is by far the oldest economic argument for government intervention. infant industry strategic trade policy consumer protection national security retaliation

infant industry

An implication of trade barriers for business practice is that they reduce the cost of importing products to a country. put a foreign firm at a competitive advantage to indigenous competitors in that country. allow for efficient allocation of production functions. limit a firm's ability to serve a country from locations outside of that country. encourage governments to engage in foreign direct investment.

limit a firm's ability to serve a country from locations outside of that country.

When the management team reviewed its government contract on office chairs, they noticed that in order to bid on the project, at least 37 percent of the value of the office chairs had to be produced in the United States. This stipulation is an example of a(n) antidumping policy. voluntary export restraint. administrative trade policy. local content requirement. ad valorem tariff.

local content requirement.

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 dominate the industry. move away from protectionism. provoke retaliation. incur huge financial debts. upset the special-interest groups within the economy.

provoke retaliation.

In order to encourage the wine production industry, the Italian government provided low-interest loans for the purchase of equipment and plants. The government also gave cash grants and made tax reductions. Which instrument of trade policy is being used by the Italian government? tariffs voluntary export restraints subsidies local content requirements import quotas

subsidies

The U.S. agriculture industry has long-benefited from high tariff rates and _____ that protect domestic agriculture and traditional farming communities. VERs quotas subsidies quota rents ad valorem tariffs

subsidies

Foreign producers agree to __________ imposed by an exporting country because they fear more damaging punitive tariffs or import quotas might follow if they do not. voluntary export restraints tariff rate quotas quota rents export bans dumping

voluntary export restraints