IB Chapter #6 - Chapter 6 Political Economy of...

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Chapter 6: Political Economy of International Trade Introduction Free Trade – absence of barriers to the free flow of goods and services b/w countries Though many countries have free trade, many intervene in international trade to protect the interests of key domestic producers and jobs. Instruments of Trade Policy Tariff - tax levied by gov’t on imports or exports Import Tariffs 1. Import tariffs are pro-producer, pro-gov’t and anti-consumer - Tariff increases gov’t revenues - Tariff affords producers protection against foreign competitors by increasing the cost of imported foreign goods - Consumers lose b/c they pay more for imported goods and pay higher prices for domestic goods. 2. Import tariffs reduce the overall efficiency of world economy - Protective tariff encourages domestic firms to produce products at home, when could be produced more efficiently abroad Export Tariffs 1. Raise revenue for the gov’t 2. To reduce exports from a sector for political reasons Specific Tariff – tax levied as a fixed charge for each unit of good imported $3/barrel of oil Ad Valorem Tariff – tax levied as a proportion of the value of the imported good 8% to 30% on imports of foreign steel Subsidy – Gov’t financial assistance to a domestic producer -
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This note was uploaded on 03/24/2008 for the course IB 350 taught by Professor Gerber during the Spring '08 term at University of Texas.

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IB Chapter #6 - Chapter 6 Political Economy of...

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