IB6 - Click to edit Master subtitle style 8/18/11 Political...

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Unformatted text preview: Click to edit Master subtitle style 8/18/11 Political System in International Trade Juan Carlos Garca-Pia Rosete 8/18/11 Introduction Free trade occurs when governments do not attempt to restrict what its citizens can buy from another country or what they can sell to another country While many nations are nominally committed to free trade, they tend to intervene in international trade to protect the interests of politically important groups 8/18/11 Instruments Of Trade Policy The main instruments of trade policy are: Tariffs Subsides Import Quotas Voluntary Export Restraints Local Content Requirements Administrative Polices Antidumping Policies 8/18/11 Tariffs Tariffs are taxes levied on imports that effectively raise the cost of imported products relative to domestic products Specific tariffs are levied as a fixed charge for each unit of a good imported Ad valorem tariffs are levied as a proportion of the value of the imported good Tariffs increase government revenues, provide protection to domestic producers against foreign competitors by increasing the cost of imported foreign goods, and force consumers to pay more for certain imports So, tariffs are unambiguously pro-producer and anti- consumer, and tariffs reduce the overall efficiency of the world 8/18/11 Subsidies Subsidies are government payments to domestic producers Consumers typically absorb the costs of subsidies Subsidies help domestic producers in two ways: they help them compete against low-cost foreign imports they help them gain export markets 8/18/11 Import Quotas And Voluntary Import quotas directly restrict the quantity of some good that may be imported into a country Tariff rate quotas are 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 Voluntary export restraints are quotas on trade imposed by the exporting country, typically at the request of the importing countrys government A quota rent is the extra profit that producers make when supply is artificially limited by an import quota Import quotas and voluntary export restraints benefit domestic producers by limiting import competition, but they 8/18/11 Local Content Requirements A local content requirement demands that some specific fraction of a good be produced domestically Local content requirements benefit domestic producers, but consumers face higher prices 8/18/11 Administrative Policies Administrative trade polices are bureaucratic rules that are designed to make it difficult for imports to enter a country These polices hurt consumers by denying access to possibly superior foreign products 8/18/11 Antidumping Policies Dumping refers to selling goods in a foreign market below their costs of production, or selling goods in a foreign market below their fair market value Dumping enables firms to unload excess production in...
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IB6 - Click to edit Master subtitle style 8/18/11 Political...

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