Government Interventions
What is free trade?
Free trade implies that the national government exerts minimal influence on the exporting and importing decisions of private firms.
What is trade protectionism?
Answer: Governmental restrictions and competitive support actions to affect trade flows.
What is a subsidy?
Answer: Financial assistance to domestic producers in the form of cash payments, low-interest loans, tax breaks, or product price supports.
What is an ad valorem tariff?
Answer: A tariff levied as a percentage of the value of an imported product.
What is the goal of the World Trade Organization (WTO)?
Answer: To settle trade disputes among its members and help the free flow of trade.
Why do governments sometimes intervene in trade?
Answer 1 - To protect jobs, preserve national security, respond to unfair trade practices, and gain influence over other nations.
Answer 2 - If you answer for political, economic or cultural reasons
Why do governments impose trade protectionism measures?
Answer: To protect domestic industries, safeguard jobs, ensure national security, and respond to unfair trade practices.
What is a free trade zone?
Answer: A designated geographic region through which merchandise is allowed to pass with lower customs duties and fewer customs procedures.
What is a quota?
Answer: A quantitative restriction on specific imports from a specific country for a set period of time.
What does dumping mean in international trade?
Answer: When a company exports a product at a price lower than the price normally charged in its domestic market or lower than the cost of production.
What is the cultural motive behind government intervention in trade?
Protection of national identity
What is a countervailing duty? Provide an example.
Answer: A countervailing duty is a tariff imposed to offset the advantage an exporter receives from a subsidy.
Example: If Country A provides subsidies to its steel manufacturers, and Country B believes this gives Country A an unfair advantage in the steel market, Country B may impose a countervailing duty on imported steel from Country A to neutralize the effects of the subsidy.
What is a voluntary export restraint?
Answer: A quota that a nation imposes on its own exports, usually at the request of another nation.
What is an embargo?
Answer: An absolute ban on the exporting and importing of goods to a particular destination.
What was the Smoot-Hawley Act's influence on U.S. trade policy?
Answer: It shifted the U.S. trade policy from free trade to protectionism and helped trigger the Great Depression.
Which products require special government approval before exports?
Dual-use products, such as a GPS navigation device.
A country imposes export quotas on its domestic producers. What is the most likely reason for this?
Answer: To maintain adequate supplies of a product in the home market.
Which U.S. government agency provides financing for U.S. exports?
Or any other agency from your own countries
Answer: The Export-Import Bank of the United States.
Scenario: A country restricts nonessential imports by limiting the availability of foreign exchange to importers. What type of trade restriction is this?
Answer: Currency controls.
A nation imposes high tariffs on imports to protect its domestic industries. Which argument supports this policy?
Answer: The infant industry argument, which proposes that tariffs should protect new industries until they become competitive.
What is a major political motive for government intervention in trade?
Answer: Protecting infant industries from foreign competition.
A government wants to protect its domestic sugar producers.
It decides to impose a tariff rate quota on sugar imports. Who would benefit from this decision?
Answer: Domestic sugar producers.
How do local content requirements promote trade?
Answer: They force companies from other nations to use local resources in their production processes, particularly labour.
Scenario: A company is told that at least 40% of its product must be manufactured in the destination country before it can sell its product there. What is this an example of?
Answer: Local content requirement.
A country is accused of dumping steel on the U.S. market at low prices. What action might the U.S. government take?
Answer: Impose an antidumping duty to offset the effects of dumping.