Chapter 7 Smartbook

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 ______.

dumping

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) _____.

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 percent.

In _____ Britain withdrew from the European Union following _____.

2016, Brexit

While there were a total of 196 cases handled by GATT, records show that between 1995 and 2019, the WTO successfully handled more than _____ trade disputes.

500

Company ABC in Scotland exports a pound of cheese to the United States for $100. The United States places a 9 percent tax on the cheese as a proportion of its value. What type of tariff is this?

Ad valorem

Which two actions can governments use to intervene in business with the intent of helping firms establish a competitive advantage?

Antidumping actions, subsidies

What are two reasons countries should remain focused on opening markets?

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

The infant industry argument has what potential negative consequence?

Causing infant industries to lack efficiency

Which two groups are negatively impacted when an import tariff is enacted?

Consumers, Foreign producers

What are three reasons that caused the global trading system erected under GATT to be strained during the 1980s and early 1990s?

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

What are three ongoing priorities being addressed at the Doha talks?

Cutting tariff rates on services, Limiting antidumping laws, Phasing out agriculture subsidies

The _____ Round started in 2001 and still continues to this day: dealing with issues of agriculture protectionism, intellectual property protection, and other priorities of the WTO.

Doha

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

Great Britain

What are the four issues currently at the forefront of the WTO agenda?

High tariffs on nonagricultural goods and services, Protectionism in agriculture, Antidumping policies, Lack of intellectual property protection

Which two outcomes typically occur with the implementation of local content regulations?

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

What two issues were addressed by the Uruguay Round?

Reducing agricultural subsidies, Reducing tariffs on manufactured goods

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

Tariff rate quotas

What is considered the simplest instrument of trade policy?

Tariffs

What are three trade barriers that can constrain a firm's ability to disperse productive activities?

Tariffs, Quotas, Local content regulations

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

The vague definition of dumping

In what two ways can a government use intervention in trade as a foreign policy instrument?

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

Government-imposed import quotas can limit a company's ability to serve a country from a foreign location.

True

The United States has imposed trade sanctions on other countries as a way to protect and promote human rights in those nations.

True

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

multilateral trade agreements

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

opposed to

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 policies

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

Governments develop ______ policies to punish foreign companies that sell their products at below fair market value.

antidumping

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 U.S. Congress in 1930, was to

avoid rising unemployment.

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

Strict trade sanctions remain in place between the U.S. and Cuba with the intent of _____.

creating economic hardship and replacing the form of government in Cuba

According to the strategic trade policy argument, a government can help raise national income if it can somehow ensure that the firms that gain a first-mover advantage in an industry are_____.

domestic firms

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

dynamic

The argument for strategic trade policy suggests a(n) ______ justification for government intervention in trade.

economic

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

enforcement mechanisms

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

export ban

If a country places a 20 percent 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

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

financial services

GATT was put into place under the leadership of the U.S. government as a way to

foster free trade.

When the government does not use quotas, taxes, or other means to restrict what its citizens can buy from or sell to another country, it is called _____ trade

free

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

giving recipients an unfair competitive advantage.

American car makers promote the idea that Japan makes it difficult for others to compete in the industry because the country has

implemented vehicle parts standards that no other country uses.

Government intervention is said to be self-defeating because it tends to protect _____.

inefficient firms

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 oldest argument for government intervention in trade in which developing nations must protect their domestic industries until they are ready to compete globally is the ______ argument.

infant industry

The WTO's TRIPS agreement attempts to protect _____ around the world.

intellectual property rights

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

Export tariffs are _____ (more or less?) common than import tariffs.

less

A(n) ______ states that some percentage of a good must be produced domestically.

local content requirement

In order to win a contract in Mexico, QVB Auto Manufacturing must make 65 percent of the component parts of their vehicles in Mexico. This is an example of a(n)

local content requirement.

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 requirements

A government would impose administrative trade policies in order to

make it difficult for imports to enter a country.

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

multilateral

Governments occasionally protect certain industries, like defense-related industries, for ______ reasons.

national security

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

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

When analyzing the economic effects of import tariffs, it has been concluded that tariffs are considered anti-consumer and pro-_____.

producer

Higher tariff rates on agricultural products come from a desire to

protect domestic agriculture from foreign competition.

Developed countries use local content requirements to

protect local jobs from foreign competition.

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

protecting national security

The ultimate effect of high tariff barriers and government subsidies on agricultural products is to _____ prices to consumers

raise

The TRIPS agreement is based on the notion that inadequate protection of intellectual property ____ the incentive for innovation

reduces

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

rent

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.

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

should

A tax on imports that is designated as a fixed monetary amount per unit of import is called a(n) ______ tariff.

specific

If a country assesses a fixed charge of $5 per unit of rice that's imported, it is using a(n) ______ tariff.

specific

One consequence of free trade is higher domestic consumption and a more efficient use of resources. These would be considered _____ economic gains.

static

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

subsidies

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

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 _____.

subsidy

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

tariff

Taxes placed on imports to protect domestic producers from foreign competition and to produce revenue for the government are called

tariffs

During the 1980s and 1990s, the world trading system was strained by the persistent trade deficit in the world's largest economy, which was:

the United States.

One of the greatest benefits of local content regulations for a producer is that _____.

they limit foreign competition

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

trade sanctions

Krugman argues that if each country seeks to follow a strategic trade policy to protect its interests, this may lead to a ______.

trade war

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

trade war.

Unilateral lowering of trade barriers has not occurred mostly due to a lack of _____ among governments.

trust

Paul Krugman would agree that while strategic trade policy seems appealing in theory, in reality, strategic trade policy is _____.

unworkable

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.

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.

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 restraints

The WTO reports that approximately _____ of all antidumping actions reported involve the basic metals, chemicals, plastics, and electrical equipment industries.

70 percent

Which three industries are frequently targeted by antidumping actions?

Basic metal, Plastics, Chemicals

As noted in the text, the U.S. 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 U.S. companies millions of dollars in lost revenue.

Chinese

Protecting intellectual property, through patents, trademarks, and copyrights, fosters innovation and can lead to what two results?

Economic growth, Rising living standards

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

Export ban

Which function did the creators of the WTO hope it would perform?

Facilitate future trade deals

Critics say that protectionism afforded by the infant industry argument has helped eliminate inefficient industries.

False

Government policies related to international trade have little effect on the success of a business.

False

Krugman advocates that it is logical to expect the U.S. government to ignore special-interest politics when forming policy.

False

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

False

What were the first two service industries targeted by the WTO as part of its effort to include regulations governing foreign direct investment?

Financial services, Global telecommunications

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

Free

______ is the acronym for the multilateral agreement established in 1947 aimed at the abolition of quotas, tariffs, and subsidies in order to liberalize trade.

GATT

Which two processes are in place in the United States to protect domestic farmers from foreign competition?

Government subsidies, High tariff rates

Which two groups are positively impacted when an import tariff is enacted?

Government, Domestic producers

What are the two components of strategic trade policy?

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

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

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

Ricardo

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

According to the text, what are three economic effects of import tariffs?

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

What are four main instruments of trade policy?

Tariffs, Import quotas, Antidumping duties, Local content requirements

What group worked to extend GATT rules to provide enhanced protection for intellectual property and significantly reduce barriers on trade in textiles?

The Uruguay Round

What occurs when a company practices dumping?

The firm is unloading excess production in a foreign market.

What is a bound tariff rate?

The highest tariff rate that can be charged

What are two characteristics of countervailing duties?

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

What are two ways trade barriers hamper a firm's productive activities?

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

Why do exporting countries agree to impose voluntary export restraints?

To avoid damaging tariffs and import quotas on their products

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

To ensure sufficient supply of a good within the country

What are the two reasons that export tariffs are levied?

To reduce exports from an industry sector, often for political reasons, To raise revenue for the government

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

True

Following Brexit, Great Britain withdrew from the European Union in 2016.

True

It is the goal of the WTO to bring tariff rates down to zero.

True

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

True

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

True

Japan imposed a limit on auto exports to the United States as a result of pressure by the U.S. government. What instrument of trade policy does this represent?

Voluntary export restraint

The ______ is the organization that encompasses GATT, GATS, and TRIPS.

WTO

The main objective of antidumping policies is to

protect domestic producers from unfair foreign competition.

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

punitive

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

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

received an unfair competitive advantage.

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.

ad valorem