Chapter 7

Export tariffs

tax placed on the export of a good. The goal behind an export tariff is to discriminate against exporting in order to ensure that there is sufficient supply of a good within a country

The infant industry argument

New industries must be temporarily protected from international competition to help them reach a position where they can compete on world markets with the other firms. This strategy is usually used in developing countries to build industries that can compete with companies from the develop countries. However, there are some problems with this industries since it leads to the fact that it's going to much more difficult for the firms to pursue FDIs and if they are not going to more efficient during the protection then it's worthless.

Political Arguments for intervention from the Government in the trade

Protecting jobs and industries, Protecting national security, Protecting consumers, Furthering Foreign Policy Objectives, protecting human rights

Types of tariffs

Specific tariffs: fixed charge for each unit of a good imported (e.g., $3 per barrel of oil) Ad valorem tariffs: proportion of the value of the imported good

Subsidies

That's a government financial assistant to a domestic company. Subsidies take many forms, including cash grants, low-interest loans, tax breaks, and government equity participation in domestic firms. The purpose of the subsidies is to help domestic companies with competing against foreign imports and gaining export markets. However, in practice, many subsides don't tend to increase the companies' competitiveness. Instead, they tend to protect the inefficient companies and promote excess production.

Strategic Trade Policy

There are two components of this. Firstly, a government can help raise national income if it can somehow ensure that the firm or firms that gain first-mover advantages in an industry are domestic rather than foreign enterprises. Secondly, it might pay a government to intervene in an industry by helping domestic firms overcome the barriers to entry created by foreign firms that have already reaped first-mover advantages. The problem with using strategic trade policy is that a country that attempts to use such policies will probably provoke retaliation.

Administrative Policies

These are bureaucratic rules designed to make it difficult for imports to enter a country

Antidumping Policies

These are designed to punish foreign firms that engage in dumping. The ultimate objective is to protect domestic producers from unfair foreign competition. Dumping is about 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.

Export ban

This is a policy that partially or entirely restricts the export of a good

Local content requirements

This is a requirement that some specific fraction of a good be produced domestically. The requirement can be expressed either in physical terms (e.g., 75 percent of component parts for this product must be produced locally) or in value terms (e.g., 75 percent of the value of this product must be produced locally). Local content regulations provide protection for a domestic producer of parts in the same way an import quota does: by limiting foreign competition. However, this will again impact the consumers

Import Quotas

A direct restriction on the quantity of a product that can be imported in a country. It benefits domestic producers by limiting import competition. As with all restrictions on trade, quotas do not benefit consumers. An import quota or VER always raises the domestic price of an imported good. When imports are limited to a low percentage of the market by a quota or VER, the price is bid up for that limited foreign supply

Voluntary export restrains

A government-imposed limit on the quantity of some category of goods that can be exported to a specified country during a specified period of time. This typically at the request of the importing country's government and the exporting countries usually accept because they fear more punishment than this in the future like import quotas

Tariff rate Quotas:

A lower tariff rate is applied to imports within the quota than those over the quota

Tariffs and its consequences

It's a tax levied on imports or exports. tariffs are placed on imports to protect domestic producers from foreign competition by raising the price of imported goods. However, tariffs also produce revenue for the government. Consumers lose by tariffs because they must pay more for certain imports(the prices go up). Other than that, import tariffs also make the economy as a whole less efficient, considering it causes that companies are going to produce their goods at home instead of the places that are the most efficient.

How can intervention from the government protect consumers?

Many governments have long had regulations to protect consumers from unsafe products. The indirect effect of such regulations often is to limit or ban the importation of such products. However, trade barriers usually affect the consumers negatively.

Retaliating

Some argue that governments should use the threat to intervene in trade policy as a bargaining tool to help open foreign markets and force trading partners to "play by the rules of the game". If it works, such a politically motivated rationale for government intervention may liberalize trade and bring with it resulting economic gains. It is a risky strategy, however. A country that is being pressured may not back down and instead may respond to the imposition of punitive tariffs by raising trade barriers of its own.