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Pugel_14_SG_CH11 - CHAPTER 11 PUSHING EXPORTS Objectives of...

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CHAPTER 11 PUSHING EXPORTS Objectives of the Chapter In contrast to limiting the number of imports into a country, governments may actively promote exports of goods from a country. While this sounds like a policy of encouraging free trade, in practice it is implemented to gain some “unfair” advantage over another exporting country or over the import-competing firms in a country. These policies have an interesting effect: unlike tariffs, an export subsidy tends to benefit other countries while causing a net loss for the exporter country offering the subsidy. The motivation, however, generally is neither goodwill toward one’s neighbor nor self-flagellation. Instead, export promotion is usually a strategy in which the exporter country takes short-run losses on selling cheap products abroad in the hopes that import-competing producers in the other countries, unable to survive in the race to the bottom, drop out of the market. At that point, the exporter country gains monopoly power and the profits that go with it. After studying Chapter 11 you should understand 1. the economic meaning of “dumping.” 2. the difference between predatory dumping and persistent dumping. 3. export subsidies and countervailing import duties. 4. the welfare effects of subsidies and duties. 5. the special status of agricultural goods in international trade. Important Concepts Antidumping duty: Tariffs sanctioned under the International Anti-Dumping Code (signed by most members of the WTO) to counteract or prevent dumping. Some countries may levy antidumping duties not to counteract export dumping but to further protect domestic import-competing producers without levying import tariffs. Countervailing import duties: Retaliatory duties against a foreign government that is subsidizing exports into your national market. Dumping: A form of international price discrimination in which an exporting firm either sells at a lower price in a foreign market than it charges in
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