Chapter 6a Political Ecomony of International Trade

Chapter 6a Political Ecomony of International Trade -...

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Unformatted text preview: 6-1Click to edit Master subtitle styleChapter 6The Political Economy of International Trade6-2Instruments of Trade PolicyQuestion:How do governments intervene in international trade?There are seven main instruments of trade policy 1.Tariffs 2.Subsidies3.Import quotas4.Voluntary export restraints5.Local content requirements 6.Antidumping policies 7.Administrative policies 6-3TariffsA tariffis a tax levied on imports that effectively raises 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 6-4TariffsQuestion:Why do governments impose tariffs?Tariffs increase government revenuesprovide protectionto domestic producers against foreign competitors by increasing the cost of imported foreign goodsforce consumers to pay more for certain importsSo, tariffs are unambiguously pro-producer and anti-consumer, and tariffs reduce the overall efficiency of the world economy 6-5Classroom Performance SystemA tariff levied as a fixed charge for each unit of a good imported is a(n) a)Fixed tariffb)Specific tariffc)Ad valorem tariffd)Transit tariff6-6SubsidiesA subsidyis a government payment to a domestic producer Subsidies help domestic producers compete against low-cost foreign importsgain export markets Consumers typically absorb the costs of subsidies6-7Import Quotas and Voluntary Export RestraintsAn import quota is a direct restriction on the quantity of some good that may be imported into a countryTariff rate quotasare 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 rentisthe extra profit that producers make when supply is artificially limited by an import quota 6-8Import Quotas and Voluntary Export RestraintsQuestion:Who benefits from import quotas and voluntary export restraints?Import quotas and voluntary export restraints benefit domestic producers by limiting import competition, but they raise the prices of imported goods for consumers 6-9Local Content RequirementsA local content requirement demands that some specific fraction of a good be produced domesticallyThe requirement can be in physical terms or in value termsLocal content requirements benefit domestic producers and jobs, but consumers face higher prices6-10Administrative PoliciesAdministrative 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 products6-11Administrative PoliciesDumpingis selling goods in a foreign market below their cost of production, or selling goods in a foreign market at below their fair market...
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This note was uploaded on 09/23/2011 for the course ECON 101 taught by Professor Smith during the Spring '11 term at North Shore Community College.

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Chapter 6a Political Ecomony of International Trade -...

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