Chapter 7 Review

This chapter looks at the political reality of international trade. Although many nations are nominally committed to free trade, they tend to intervene in international trade to protect the interests of politically important groups or promote the interests of key domestic producers.

-Trade policies such as tariffs, subsidies, antidumping regulations, and local content requirements tend to be pro-producer and anti-consumer
- Gains accrue to producers( who are protected from foreign competitors), but consumers lose bc they must pay more for imports

-2 types of arguments for gov’t intervention in international trade: political and economic

-Political arguments for intervention are concerned with protecting the interests of certain groups, often at the expense of other groups, or promoting goals with regard to foreign policy. Economic arguments for intervention are about boosting the overall wealth of the nation.

-Strategic trade policy suggests that with subsidies, gov’t can help domestic firms gain first-mover advantages in global industries where economies of scale are important

-Problems with strategic trade policy are two-fold: (a) such a policy may invite retaliation, in which case all will lose (b) strategic trade policy may be captures by specific interest groups, which will distort it to their own words

-Trade policy uses 7 main instruments: Tariffs, subsidies, import quotas, voluntary export restraints, local content requirements, administrative policies and antidumping duties

Terms:
Tariffs- a tax level levied on imports (or exports), falls into 2 categories: 1) Specific tariffs- levied as a fixed charge for each unit of a good imported (for example, $3 per barrel of oil) 2) Ad valorem tariffs- levied as a proportion of the value of the imported good

Subsidy- a government payment to a domestic producer (