ch 7

What were the first two industries targeted by the WTO as part of its effort to include regulations governing foreign direct investment? (Check all that apply.) Global telecommunications and _____ have been targeted by the WTO as industries that need expanded trade agreements.

Financial services Global telecommunications

______ is the acronym for the multilateral agreement established in 1947 aimed at the abolition of quotas and the reduction of tariff duties among the contracting nations. ______ is the organization that encompasses GATT, GATS and TRIPS.

GATT WTO

At one time, strict trade sanctions were in place between the US and Cuba as a way to _____.

create economic hardship and replace the form of government in Cuba

True or false: GATT has NOT recognized the infant industry argument as a legitimate reason for protectionism.

false

True or false: Krugman advocates that it is logical to expect the US government to ignore special-interest politics when forming policy.

false Reason: Krugman concludes that in the US, it is not logical to ask the government to ignore special-interest groups while formulating policy.

True or false: Quota rent refers to the tax agricultural producers must pay when excess supply is produced and must be stored by the government.

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

Global telecommunications and _____ have been targeted by the WTO as industries that need expanded trade agreements.

financial services

GATT was put into place by the US government as a way to

foster free trade

According to ______ trade theory, in reality, strategic trade policy is unworkable.

free

______ trade is the economic policy of not discriminating against exports to or imports from foreign countries.

free

The WTO will work hard to reduce tariffs toward zero because this will lead to substantial ______ in trade.

gains

The United States has placed a limit on the amount of tuna in airtight containers that can be imported into this country. This is an example of a(n) _____. An import _____ is a type of trade restriction that sets a physical limit on the quantity of a product that can be imported into the country in a set period of time.

import quota

According to a study cited in the text, if advanced countries stopped providing subsidies to farmers, global trade in agricultural products would

increase by 50%.

During the 1980s and early 1990s, protectionism around the world

increased

The oldest argument for government intervention in trade where developing nations must protect their domestic industries until they are ready to compete globally is the ______ argument. The ______ argument for trade intervention states that developing countries need to support new industries until they are strong enough to compete globally.

infant industry

The European Union's support for the Common Agricultural Policy illustrates why strategic trade policy is problematic. In this instance, the government was influenced by ______ to the detriment of consumers.

interest groups

When governments intervene in foreign trade, they often claim they are protecting ______ from unfair foreign competition.

jobs

Country A wants to lower trade barriers with its neighbor, Country B. While both countries support free trade, they are both reluctant to lower their barriers because they are not sure the other country will reciprocate. What obstacle is preventing the advancement of free trade between these countries?

lack of trust

1) A(n) ______ states that some percentage of a good must be produced domestically. 2) In order to win a contract in Mexico, QVB Auto Manufacturing must make 65% of the component parts of their vehicles in Mexico. This is an example of a 3) Developing countries use ______ to move their manufacturing base from simply assembling component parts to the manufacturing of those parts by requiring that a specific fraction of a good be produced domestically.

local content requirement

Reciprocal trade agreements between two or more partners are called _____ trade agreements.

multilateral

The stalled Doha Round has caused many nations to use _____ to foster trade.

multilateral trade agreements

The WTO will continue to work to ______ markets because this will lead to an increase in world income, including an increase in income to developing nations.

open

Today, many nations are _____ new trade policies associated with the WTO

opposed to

What are three ongoing priorities for the WTO and agenda items at Doha? Check all that apply.

phasing out agriculture subsidies limiting antidumping laws cutting tariff rates on services

A foreign nation is concerned that all jobs in the computer manufacturing industry will be lost to another country. The government decides to step in and prevent this from happening and implements tariffs on certain imports. The leader is praised for this action and reminds voters of this during the next election. In this situation, government intervention is based on a _____ argument.

political

Countries base the decision for intervention on ______ when protecting aerospace and semiconductor industries.

protecting national security

The net effect of high tariff barriers and subsidies on agricultural products is to ___prices to consumers. (Choose raise or lower.)

raise

The TRIPS agreement is based on the notion that inadequate protection of intellectual property __ the incentive for innovation. (Choose reduces or increases.)

reduces

The economic benefit gained when the supply is artificially restricted by an import quota is called quota ______.

rent

If we accept that the tenets of strategic trade policy are correct, then the government _____ intervene in international trade.

should

While there were a total of 196 cases handled by GATT, records show that between 1995 and 2017, the WTO successfully handled about _____ trade disputes.

500

A consequence of subsidies paid to companies during difficult economic times -- for example, the Japanese farm subsidies -- is

giving recipients an unfair competitive advantage.

A government would impose administrative trade policies in order to

make it difficult for imports to enter a country.

By threatening ______ trade sanctions, one country can convince another country to open its markets.

punitive

Which economist was a key figure in the early free trade movement in Great Britain?

smith + Ricardo

What trade policy argument suggests that governments should subsidize promising domestic firms in emerging industries and should also assist firms in overcoming barriers to entry created by foreign firms due to first-mover advantages. Strategic trade policy suggests a(n) ______ justification for government intervention in trade.

strategic economic

True or false: The fact that countries are using the WTO represents an important vote of confidence in the WTO's dispute resolution procedures.

true

True or false: To limit imports over the set quota, tariff rate quotas are common in agriculture.

true

True or False: The United States has imposed trade sanctions on other countries in order to protect and promote human rights. Governments occasionally protect certain industries, like defense-related industries, for ______ reasons.

true vReason: The United States uses trade policy to promote human rights.For example, it erased long-time trade sanctions against Myanmar in 2012 after the country implemented democratic reforms. national security

True or false: Export tariffs are sometimes levied to raise revenue for the government.

true; Reason: Two objectives of export tariffs: raise revenue for the government and reduce exports from a sector.

A self-imposed trade restriction on the quantity of a good that the exporting country is allowed to export to another country is called a(n)

voluntary export restraint.

Which two groups are negatively impacted when an import tariff is enacted? (Check all that apply.) When analyzing the economic effects of import tariffs, it has been concluded that tariffs are considered anti-consumer and pro-_____.

Foreign producers Consumers producer

What are the two components of strategic trade policy? (Check all that apply.)

Governments should intervene to assist firms in overcoming barriers to entry created by foreign firms due to first-mover advantages. Governments should subsidize promising domestic firms in emerging industries.

What extended GATT rules to provide enhanced protection for intellectual property and significantly reduced barriers on trade in textiles?

The Uruguay Round

What are three reasons that the global trading system erected under GATT was strained during the 1980s and early 1990s? (Check all that apply.)

The economic success of Japan The persistent trade deficit in the United States Countries finding ways to get around GATT regulations

What are four main instruments of trade policy?

antidumping duties tariffs import quotas local content requirements

Which of the following functions did the members of the WTO expect it to perform? (Check all that apply.)

Be effective at policing global trade. Facilitate future trade deals.

What are two reasons countries should remain focused on opening markets? (Check all that apply.)

Because average tariffs on services remains higher than on industrial goods Because of high tariff rates on imports of selected goods from developing nations into developed nations

Which three industries are frequently targeted by antidumping actions? (Check all that apply.)

Chemicals Plastics Basic metal

Which two groups are positively impacted when an import tariff is enacted? (Check all that apply.) According to the text, what are three economic effects of import tariffs? (Check all that apply.)

Domestic producers Government Tariffs reduce the overall efficiency of the world economy. Tariffs are generally pro-producer. Tariffs are anti-consumer.

In the mid 1800s, ______ was the first nation to officially follow free trade.

Great Britain

Which two activities are in place in the US to protect domestic farmers from foreign competition? (Check all that apply.)

High tariff rates Government subsidies

With regard to strategic trade policy, which two actions can governments take in response to pressure from business firms? (Check all that apply.)

Push for more open markets and freer trade. Increase protectionism.

The Uruguay Round started in 1986 and addressed which three issues?

Reducing agricultural subsidies Reducing tariffs on industrial goods Reducing tariffs on manufactured goods

Many Western countries imposed trade sanctions against ______ during the 1980s and 1990s to encourage the country to improve human rights policies.

South Africa

______ constrain a firm's ability to export its products by raising the price of the exported product, which could put the firm at a competitive disadvantage with domestic firms in that country.

Tariff barriers

______ permit a specific quantity of imported goods to enter the country under a reduced rate of duty during the quota period.

Tariff rate quotas

According to the text, which of the following two world events imply that free trade is not a global consensus?

The election of Donald Trump The withdrawal of Britain from EU

Bureaucratic rules implemented by governments that benefit producers and hurt consumers are called ______ trade policies.

administrative

A country might create safety standards for certain products that other nations can't comply with. As a result, these nations can't be involved with exporting parts for those goods and trade does not exist. These safety standards are a form of _____.

administrative trade policy

Tariff rates on ______ products are generally much higher than tariffs on manufactured products or services.

agricultural

Sometimes governments pay subsidies to help companies survive challenging economic climates. In effect, these companies have

an unfair competitive advantage.

The infant industry argument has what potential negative consequence?

causing infant industries to lack efficiency.

As noted in the text, the US government used the threat of trade sanctions to try to convince the _____ government to enforce its intellectual property laws since massive copyright infringements in that country have cost US companies millions of dollars in lost revenue.

china

Countries can use ______ duties on an offending import to offset dumping.

countervailing

When the Smoot-Hawley Act was put into place it _______ as a way to protect domestic industries.

created a wall of tariff barriers.

The _____ Round started in 2001 and continues today to deal with the issues of agriculture protectionism, protection of intellectual property, and other priorities of the WTO.

doha

When manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production, it is called ______. What occurs when a company practices dumping?

dumping The firm is unloading excess production in a foreign market.

One benefit of free trade is that is stimulates economic growth and wealth creation. In other words, it provides _____ economic gains. static/dynamic

dynamic

The WTO is more successful than GATT because the WTO has ______ mechanisms that make it more effective.

enforcement

In 1975, Congress restricted the export of US crude oil in response to the actions taken by OPEC. This restriction is an example of which trade policy?

export ban

When a country restricts the export of a product, it is implementing a(n) _____.

export ban

If a country places a 20% tax on dairy products exported to other nations in order to limit exports and have sufficient supplies of dairy products for the home country, it is using a(n) ______.

export tariff

Higher tariff rates on agricultural products come from a desire to

protect

The main objective of antidumping policies is to

protect domestic producers from unfair foreign competition.

Developed countries use local content requirements to One of the greatest benefits of local content regulations for a producer is that _____,

protect local jobs from foreign competition. they limit foreign competition

An import _____ is a type of trade restriction that sets a physical limit on the quantity of a product that can be imported into the country in a set period of time.

quota

Protecting intellectual property through patents, trademarks, and copyrights, fosters innovation and can lead to what two results? (Check all that apply.)

rising living standards economic growth

GATT rules initially only dealt with trade in manufactured goods and commodities. With the increase in trade in the ______ sector, the Uruguay Round sought to establish agreements to cover this area.

service

GATT negotiations continue to deal with additional issues such as (Check the three that apply.)

services. intellectual property. agricultural subsidies

A tax on goods coming into or leaving a country is called a(n) ______.

tariff

Why do exporting countries agree to impose voluntary export restraints?

to avoid damaging tariffs and import quotas on their products Reason: This is done out of fear of damaging punitive tariffs and import quotas.

What's the main reason a country would use export tariffs?

to ensure sufficient supply of a good within the country

In 2003, Libya announced it would terminate a program to build nuclear weapons. This is thought to be a result of ______ placed against Libya by the United States.

trade sanctions

Country A subsidizes oil development and Country B is losing any competitive advantage because of it. Krugman would agree that Country B hopes to minimize subsidies to prevent a Krugman argues that if each country seeks to follow a strategic trade policy to protect its interests, this may lead to a ______.

trade war

What is a bound tariff rate?

The highest tariff rate that can be charged

Which of the following two outcomes typically occur with the implementation of local content regulations? (Check all that apply.)

The restrictions on imports raise the prices of imported components, which lead to higher prices for consumers. Local content regulations provide protection for a domestic producer.

In order to preserve protectionism, many countries are looking to which of these loopholes associated with antidumping?

The vague definition of dumping

What are two characteristics of countervailing duties?

They are a special tariff. They can be substantial and stay in place for 5 years.

What are two ways trade barriers hamper a firm's productive activities? (Check all that apply.)

They raise the cost of exporting products. Quotas limit the ability to serve a country from outside locales.

In what two ways can a government use intervention in trade as a foreign policy instrument? (Check all that apply.)

To grant preferential trading terms to countries it wants to build relations with To pressure or punish "rogue states"

A country might create safety standards for certain products that other nations can't comply with. As a result, these nations can't be involved with exporting parts for those goods and trade does not exist. These safety standards are a form of _____. The Japanese government is used in the text as an example of how governments have effectively used ______ to limit imports of vehicle parts through bureaucratic rules.

administrative trade policy

The WTO does allow ______ to be imposed on foreign goods sold below their cost of production when domestic producers are being hurt.

antidumping duties

One purpose of the Smoot-Hawley Act, passed by the US Congress in 1930, was to

avoid rising unemployment

Types of Tariffs If a country assesses a fixed charge of $5 per unit of rice that's imported, it is using a(n) ______ tariff. A tax on imports that is specified as a fixed monetary amount per unit of import is called a(n) ______ tariff. Company ABC in Scotland exports a pound of cheese to the US for $100. The US places a 9% tax on the cheese as a proportion of its value. What type of tariff is this? A(n)______ tariff is a tax that is levied on a good on the basis of its value, not on the basis of its weight or quantity.

specific tariff ad valorem

According to strategic trade policy, governments should use ______ to support development work aimed at commercializing target technologies.

subsidies

The nationwide company, Nightingale Health Systems, received a tax break from the government when it was faltering and ready to declare bankruptcy. This subsidy helped the company with production costs and allowed it to have a stronger presence in the competitive health industry. This tax break is a type of _____. A(n) ______ is a payment by the government to a domestic producer to help lower production costs so they are better able to compete with foreign imports.

subsidy

Which three trade barriers constrain a firm's ability to disperse its productive activities? (Check all that apply.)

tariff barriers quotas subsidies

True or false: After analyzing current practices, it can be said that subsidies are not that successful at increasing the international competitiveness of domestic producers.

true Reason: This is true because studies show that government subsidies tend to protect the inefficient and promote excess production.

True or false: Government-imposed import quotas may limit a firm's ability to serve a country from a foreign location.

true Reason: A quota would limit a firm's ability to serve a country from locations outside that country. One result might be that the company sets up production facilities in that country.

The trade sanctions on Iraq that were imposed in 1991 after the Gulf War are an example of

using trade policy to punish rogue states.

Japan imposed a limit on auto exports to the US as a result of pressure by the US government. What instrument of trade policy does this represent? In 2012, Brazil was concerned about a surge of vehicles coming in from Mexico and considering protectionist measures. Mexico decided to be proactive and imposed _____ to limit the shipments of vehicles to Brazil.

voluntary export restraint