Trade_Policy_Instruments

Trade_Policy_Instruments - Chapter 6 The Political Economy...

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Basic Marketing – Chapter 6 Chapter 6 Chapter 6 The Political Economy of International Trade 6-2 Instruments of Trade Policy Question: How do governments intervene in international trade? { There are seven main instruments of trade policy 1. Tariffs 2. Subsidies 3. Import quotas 4. Voluntary export restraints 5. Local content requirements 6. Antidumping policies 7. Administrative policies 6-3 Tariffs { A tariff is 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
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Basic Marketing – Chapter 6 6-4 Subsidies { A subsidy is a government payment to a domestic producer { Subsidies help domestic producers { compete against low-cost foreign imports { gain export markets { Consumers typically absorb the costs of subsidies 6-5 Import Quotas and Voluntary Export Restraints { An import quota is a direct restriction on 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 country’s government { A quota rent is the extra profit that producers make when supply is artificially limited by an import quota 6-6 Local Content Requirements { A local content requirement demands that some specific fraction of a good be produced domestically { The requirement can be in physical terms or in value terms { Local content requirements benefit domestic producers and jobs, but consumers face higher prices
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Basic Marketing – Chapter 6 6-7 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 6-8 Administrative Policies { Dumping is selling goods in a foreign market below their cost of production, or selling goods in a foreign market at below their “fair” market value { It can be a way for firms to unload excess production in foreign markets { Some dumping may be predatory behavior, with producers using substantial profits from their home markets to subsidize prices in a foreign market with a view to driving indigenous competitors out of that market, and later raising prices and earning substantial profits 6-9 Administrative Policies { Antidumping polices are designed to punish foreign firms that engage in dumping { The goal is to protect domestic producers from “unfair” foreign
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This note was uploaded on 10/17/2011 for the course ECON 101 taught by Professor Thompson during the Spring '11 term at Michigan State University.

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Trade_Policy_Instruments - Chapter 6 The Political Economy...

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