Chapter 7 Government Policy and International Trade

True or False: Governments do not always act in the national interest when intervening in the economy.

True Reason: Many times governments are influenced by politically important interest groups.

True or False: To limit imports over quota, tariff rate quotas would be used for agricultural products to limit the amount entering a country

True Reason: Tariff rate quotas are common in agriculture, where the goal is to limit imports over quota

True or False: If Italy places a fixed charge of $5 for every unit of rice imported, that $5 is an example of a specific tariff.

True Reason:A specific tariff is levied as a fixed charge for each unit of a good imported.

The infant industry argument for trade intervention states that developing countries need to support new industries until they are strong enough to ___________________________. a. Compete globally b. Enter into franchises c. Import products d. Negotiate tariffs.

a. Compete globally

The protection of intellectual property has becoming increasingly important to the WTO. The basis for this is that without this protection, the incentive for innovation would _________ and economies would suffer. a. Decrease b. Increase c. Equalize d. Monopolize

a. Decrease

The WTO is more successful than GATT because the WTO has _______________ mechanisms that make it more effective. a. Enforcement b. Fiscal c. Consumer d. Monetary

a. Enforcement

During the 1980s, the trend was for ___________________ protectionism around the world. a. Greater b. Lesser

a. Greater

Political opposition in the WTO has been ______________ in many nations. a. Growing b. Declining c. Banned

a. Growing

A tariff is a tax levied on ____________________. a. Import or exports b. Services sold within the country of origin c. Goods gold within the country of origin d. Intellectual property

a. Import or exports

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. a. Infant industry b. Local content c. Voluntary export restraint d. National security

a. Infant industry

The text states that Donald Trump's ________________ views threaten the idea of a world trading system. a. Mercantilism b. Capitalism c. Socialism d. Communism

a. Mercantilism

In response to the apparent failure of the current Doha Round, many nations have implemented _______. a. Multilateral trade agreements b. Farm subsidies c. Better intellectual property rights d. Higher tariff barriers

a. Multilateral trade agreements

____________ constrain a firm's ability to export its products by raising the price of the exported product, which would put the firm at a competitive disadvantage with domestic firms in that country. a. Tariff barriers b. Fiscal policies c. Inflation rates d. Interest rates

a. Tariff barriers

Taxes placed on imports to protect domestic producers from foreign competition and to produce revenue for the government are a. Tariffs. b. Embargoes. c. Income. d. Quotas.

a. Tariffs.

Alexander Hamilton argued that tariffs are an effective means of protecting infant industries until they are better able to compete. Which is not true of tariffs used to protect infant industries? a. They promote more efficient use of resources. b. They impose significant costs on consumers in the form of higher prices. c. They are typically anticonsumer. d. They discourage greater efficiency in the protected industry. e. They are typically pro-producer.

a. They promote more efficient use of resources. Explanation: Tariffs used to protect infant industries are typically pro-producer and anticonsumer. They discourage greater efficiency in the protected industry and effectively raise prices for consumers. They do not promote more efficient use of resources.

The main objective of GATT was to liberalize __________________ restrictions. a. Trade b. Product c. Marketing d. Voting

a. Trade

As the text notes, unrestricted free trade is impossible if there is a lack of ____________ between nations. a. Trust b. Similarity c. Congruence d. Diversity

a. Trust

When considering the benefit of free trade in neighboring countries, one government might favor lowering trade barriers but won't do it because of a lack of ______________ in the other nation. a. Trust b. Value c. Power d. Rights

a. Trust

Governments implement ____________ trade policies that are designed to make it difficult for imports to enter a country. a. Residual b. Administrative c. Valorem d. Consequential.

b. Administrative

Sergei believes that a Japanese-based company is selling digital cameras well-below market costs in the United States and thereby gaining all of the business. He plans to report this to the Commerce Department who can examine the case based on US __________________ policies. a. Local content b. Antidumping c. Embargo d. Voluntary export restraint

b. Antidumping

What policies are intended to protect domestic producers from foreign competitors that dump their products at below fair market value? a. Quota rent b. Antidumping c. Administrative d. Local content

b. Antidumping

Brazil used tariffs to protect its auto industry in the 1950s. Tariffs a. Produce revenue for the firm. b. Are taxes levied on imports or exports. c. Are paid for by foreign governments. d. Are levied by an industry to protect firms from competition.

b. Are taxes levied on imports or exports.

Strategic trade policy suggests a(n) ________________ justification for government intervention in trade. a. Cultural b. Economic c. Social d. Demographic

b. Economic

One way the GATT hoped to achieve its objective was by ___________________. a. Minimizing exports b. Eliminating tariffs c. Organizing "bail outs" d. Providing loans

b. Eliminating tariffs

The strategic trade policy may look good in theory, but in practice it may be unworkable. As a result, the case for _________________ trade may come to the forefront. a. Constant b. Free c. Fair d. Restricted.

b. Free

When governments intervene in foreign trade, they often claim they are protecting ___________ from unfair foreign competition. a. Policies b. Industries c. VERs d. States

b. Industries

Which country is pointed to as the master of administrative trade policies? a. China b. Japan c. Mexico d. US

b. Japan

Evan works in a country in which the government has stated that 45% of all goods must be produced domestically. What type of requirement does this country have in place? a. Government subsidy b. Local content requirement c. Ad valorem tariff d. Voluntary export restraint

b. Local content requirement

In order to win a contract from Mexico, QVB Autos Manufacturing must make 65% of the component parts of their autos in Mexico. This is an example of a a. Local distribution requirement. b. Local content requirement. c. Local supplier requirement. d. International content requirement.

b. Local content requirement.

As a result of the Doha Round, _______________ countries are entering into multilateral and bilateral trade agreements. a. No b. More c. Fewer

b. More

What is considered the most common political argument for government intervention in foreign trade? a. Protecting consumers from dangerous products b. Protecting jobs and industries c. National security d. Advancing human rights

b. Protecting jobs and industries

Which economist was a key figure in the early free trade movement in Great Britain? a. Samuelson b. Ricardo c. Marx d. Keynes

b. Ricardo

A tax on imports that is levied as a fixed charge per unit of an imported good is called a(n) ________ tariff. a. Local content b. Specific c. Primary d. Ad valorem

b. Specific

Which round of GATT negotiations provided enhanced protection for intellectual property and significantly reduced barriers on trade in textiles? a. The DOHA Round b. The Uraguay Round c. The Bretton Woods Round d. The Washington Round

b. The Uraguay Round

Krugman promoted the idea that if each country seeks to follow a strategic trade policy to protect its interests, this may lead to _________________. a. Free trade b. Trade war c. Local content requirement d. Trade restriction

b. Trade war

The trade sanctions on Iraq that were imposed in 1991 after the Gulf War are an example of a. Encouraging domestic firms to increase their production. b. Using trade policy to punish rogue states. c. Implementing export barriers to improve domestic production. d. Using economic sanctions to direct organizational policy.

b. Using trade policy to punish rogue states

In response to claims from U.S. steel producers that Chinese producers were dumping their product in the U.S. market, the United States responded by imposing tariffs on steel imports from China. A tariff is a. An affective mechanism to encourage imports. b. Usually negotiated between two or more countries. c. A tax levied on imports. d. A way to lower prices.

c. A tax levied on imports.

Tariff rates on _______________ products are generally much higher than tariffs on manufactured products or services. a. Financial b. Intellectual c. Agricultural d. Industrial

c. Agricultural

What industry tends to benefit the most from subsidies in most countries? a. Banking b. Transportation c. Agriculture d. Manufacturing

c. Agriculture

The 13 percent tariff the European Union imposed on imports of Chinese steel is a. A transit tariff. b. A specific tariff. c. An ad valorem tariff. d. A nontariff barrier.

c. An ad valorem tariff. » Explanation Atariffis a tax levied on imports (or exports). Tariffs fall into two categories.Specific tariffsare levied as a fixed charge for each unit of a good imported (e.g., $3 per barrel of oil).Ad valorem tariffsare levied as a proportion of the value of the imported good.

The infant industry argument suggests that protecting infant industries from foreign competitors will allow them time to become large enough to enjoy economies of scale. Who typically wins and who loses from a government policy to protect infant industries? a. The home government gains, while domestic producers, foreign producers, and domestic consumers all lose. b. Foreign producers, domestic producers, domestic consumers, and the home government all lose. c. Domestic consumers and foreign producers lose, while the home government and home producers gain. d. Domestic consumers and domestic producers gain, while foreign producers and the home government lose.

c. Domestic consumers and foreign producers lose, while the home government and home producers gain. Explanation: Domestic consumers and foreign producers both lose as a result of polices designed to protect infant industries while domestic producers and domestic governments both gain

What can a country use to counter-act a country that uses subsidies to support an industry? a. Engage in a licensing deal b. Establish export tariffs c. Establish anti-dumping regulations d. Reduce local content requirements.

c. Establish anti-dumping regulations

Goods that are taxes as they ship out of a country have a(n) ___________________ tariff. a. Rent b. Subsidy c. Export d. Import

c. Export

Which argument best explains why the United States imposed tariffs on imports of Chinese steel? a. Government intervention is necessary to force trading partners to "play by the rules of the game." b. Government intervention is necessary to protect certain industries because they are important for national security. c. Government intervention is necessary for protecting jobs and industries from unfair foreign competition. d. Government intervention is necessary to support foreign policy objectives.

c. Government intervention is necessary for protecting jobs and industries from unfair foreign competition.

A(n) ____________________ 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. a. Specific tariff b. Ad Valorem tariff c. Import quota d. Subsidy

c. Import quota

If a country does not have protections in place for _______________ property, it is likely that businesses will be less inclined to pursue innovation. a. Public b. Tangible c. Intellectual d. Domestic

c. Intellectual

Krugman argues that strategic trade policy should not be embraced because many times governments are influenced by politically important __________________ to intervene in the economy. a. Foreign heads of state b. Domestic firms c. Interest groups d. Consumers

c. Interest groups

Governments occasionally protect certain industries, like defense-related industries, for _______ reasons. a. Quality control b. Competitive advantage c. National security d. Currency stabilization

c. National security

What is NOT included in the Doha agenda? a. Phasing out subsidies to agriculture producers b. Limiting antidumping laws c. Raising tariffs on industrial services d. Reducing cross-border investment barriers

c. Raising tariffs on industrial services

When the US government "bailed out" the automobile industry starting in 2009 by loaning money to keep General Motors and other automakers in business, it was an example of a(n) _______________________. a. Arbitration b. Specific tariff c. Subsidy d. Ad valorem tariff

c. Subsidy

____________ permit a specific quantity of imported goods to enter the country under a reduced rate while those exceeding the quantity are charged at a higher rate. a. Ad valorem tariffs b. Quota tariffs c. Tariff rate quotas d. Specific tariffs.

c. Tariff rate quotas

Subsidies are a form of payment that is provided by ______________________. a. Consumers b. A trading partner c. The government d. The domestic producer.

c. The government

As part of its effort to protect its auto makers from foreign competition, suppose Brazil levied a tariff based on a proportion of the value of the product. Brazil would be imposing a(n) ________________ tariff. a. Transit b. Fixed c. Specific d. Ad valorem

d. Ad valorem

During the 1970s, Congress did not allow US industries to export crude oil production. This action is an example of an export ___________. a. Tariff b. Embargo c. Dumping d. Ban

d. Ban

In 2003, Japan decided to ban imports of beef from America because of the threat of mad cow disease. This ban was implemented to directly protect ___________________. a. Franchisers b. Business c. State government d. Consumers

d. Consumers

For national security reasons, the _____________ industry is often protected by the national government. a. Banking b. Health care c. Agriculture d. Defense

d. Defense

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. a. Uruguay b. Washington c. Berlin d. Doha

d. Doha

_______________ refers to selling goods in a foreign market at below their cost of production or as selling goods in a foreign market at below their "fair" market value. a. A countervailing duty b. A voluntary export restraint c. An export ban d. Dumping

d. Dumping

Which country was the first to officially follow a policy of free trade in the mid 1800s? a. France b. Sweden c. United States d. Great Britain

d. Great Britain

The economic success of ___________________ put a strain on the world trading system in the 1980s and promoted protectionism measures. a. The United States b. Germany c. Mexico d. Japan

d. Japan

Import quotas are based on the ________________ of a good. a. Value b. Quality c. Cost d. Quantity

d. Quantity

Member nations hoped that the WTO would be a facilitator of future trade deals especially in the area of ___________________. a. Manufacturing b. Technology c. Logistics d. Services

d. Services

Reducing many of the tariffs that are still in existence will lead to a. A decrease in the trade of industrial goods. b. Substantial losses in global trade. c. A decrease in the trade of business & non-financial services. d. Substantial gains in global trade.

d. Substantial gains in global trade.

Which instrument of trade policy has been in use the longest? a. Import quotas b. Antidumping c. Local content requirements d. Tariffs

d. Tariffs

Which is true of tariffs like those the United states assessed on steel imported from China? a. They benefit consumers in the form of lower prices. b. They encourage domestic efficiency. c. They increase the overall efficiency of the world economy. d. They are pro-producer and anti-consumer.

d. They are pro-producer and anti-consumer. Explanation Tariffs like those the United States assessed on steel imports from China are pro-producer and anti-consumer.