Tariffs
taxes levied on imports that effectively raise the cost of imported products relative to domestic products
Specific tariffs
- levied as a fixed charge for each unit of a good imported
Ad valorem tariffs
levied as a proportion of the value of the imported good
What do tariffs for a Gov't
-increase government revenues
-force consumers to pay more for certain imports
-are pro-producer and anti-consumer
-reduce the overall efficiency of the world economy
Subsidies
- government payments to domestic producers
What does subsidies do for a Gov't
Subsidies help domestic producers
compete against low-cost foreign imports
gain export markets
Consumers typically absorb the costs of subsidies
Import Quotas
restrict the quantity of some good that may be imported into a country
Tariff rate quotas
a hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota
quota rent
the extra profit that producers make when supply is artificially limited by an import quota
Voluntary Export Restraints
quotas on trade imposed by the exporting country, typically at the request of the importing country's government
What do voluntary exports restraints do for a country
Import quotas and voluntary export restraints
benefit domestic producers
raise the prices of imported goods
Local Content Requirements
demand that some specific fraction of a good be produced domestically
benefit domestic producers
consumers face higher prices
Administrative Policies
bureaucratic rules designed to make it difficult for imports to enter a country
polices hurt consumers by limiting choice
Antidumping Policies
Policies-also called countervailing duties-punish foreign firms that engage in dumping and protect domestic producers from "unfair" foreign competition
dumping
selling goods in a foreign market below their costs of production, or selling goods in a foreign market below their "fair" market value
Affects of dumping
enables firms to unload excess production in foreign markets
may be predatory behavior - producers use profits from their home markets to subsidize prices in a foreign market to drive competitors out of that market, and then later raise prices
What are the arguments to intervene in trade
Political and economical , protecting jobs,Protecting industries deemed important for national security ,Retaliation for unfair foreign competition, Protecting consumers from "dangerous" products, Furthering the goals of foreign policy , Protecting the hu
Political arguments
concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers)
Economic arguments
concerned with boosting the overall wealth of a nation - benefits both producers and consumers
Protecting jobs
the most common political reason for trade restrictions
results from political pressures by unions or industries that are "threatened" by more efficient foreign producers, and have more political clout than consumers
Protecting industries deemed important for national security
industries are often protected because they are deemed important for national security
aerospace or semiconductors
Furthering the goals of foreign policy
preferential trade terms can be granted to countries that a government wants to build strong relations with
trade policy can also be used to punish rogue states
Protecting the environment
international trade is associated with a decline in environmental quality
concern over global warming
enforcement of environmental regulations
The infant industry argument
an industry should be protected until it can develop and be viable and competitive internationally
Strategic trade policy
first-mover advantages can be important to success
The Uruguay Round of GATT negotiations began in 1986 focusing on
Services and intellectual property
going beyond manufactured goods to address trade issues related to services and intellectual property, and agriculture
The World Trade Organization
it was hoped that enforcement mechanisms would make the WTO a more effective policeman of the global trade rules
the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)
working to develop common international rules for intellectual property rights
The WTO encompassed GATT along with two sisters organizations
the General Agreement on Trade in Services (GATS)
WTO focuses on
the rise of anti-dumping policies
the high level of protectionism in agriculture
the lack of strong protection for intellectual property rights in many nations
continued high tariffs on nonagricultural goods and services in many nations