Professional Documents
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Political Economy of International Trade
Political Economy of International Trade
Preseentation
Group Memebers
Tayyaba Zahid
Hamda Aslam
Uzma Batool
Mehwish Noreen
8e
Chapter 6
The Political Economy
of International Trade
McGraw-Hill/Irwin
How Do Governments
Intervene In Markets?
1: Tariff: Taxes levied on imports (also sometimes on
exports)
Specific tariff: fixed charge for each good imported
Ad valorem tariff: a % of imported goods value
Who gains:
Government
Domestic producers (at least in the short run)
Employees of protected industries keep their jobs
Who loses:
Consumers who pay higher prices
The economy which remains inefficient
Employees of protected industries who dont develop new
skills
6-6
2:Subsidies
Government payment to domestic producers
It can take many forms: Cash grants, low-interest loans, tax
breaks, equity participation, government purchases
Aim to achieve lower costs to
Compete against cheaper imports
Gain export markets
Increase domestic employment
Help local producers achieve first-mover advantage in
emerging industries
6-7
3:Import Quota
Import Quotas - restrict the quantity of some
good that may be imported into a country
Tariff rate quotas - 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
A quota rent - the extra profit that
producers make when supply is
artificially limited by an import quota
6-8
How Do Governments
Intervene In Markets?
4. Voluntary Export Restraints - quotas on trade
imposed by the exporting country, typically at
the request of the importing countrys
government
Import quotas and voluntary export restraints
benefit domestic producers
raise the prices of imported goods
How Do Governments
Intervene In Markets?
6.
7.
Antidumping Policies aka countervailing duties designed to punish foreign firms that engage in dumping
and protect domestic producers from unfair foreign
competition
6-10
Why Do Governments
Intervene In Markets?
There are two main arguments for government
intervention in the market
1. Political arguments - concerned with protecting
the interests of certain groups within a nation
(normally producers), often at the expense of
other groups (normally consumers)
2. Economic arguments - concerned with boosting
the overall wealth of a nation benefits both
producers and consumers
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2.
3.
6-12
6.
the decision to grant China MFN status in 1999 was based on this
philosophy
6-13
6-14
After WWII, the U.S. and other nations realized the value of
freer trade
established the General Agreement on Tariffs and Trade (GATT) - a
multilateral agreement to liberalize trade
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6-21
Review Question
When tariffs are levied as a fixed charge for
each unit of a good imported, they are called
a) Specific tariffs
b) Ad valorem tariffs
c) Tariff rate quotas
d) Transit tariffs
6-23
Review Question
A ________ demands that some specific fraction
of a good be produced domestically
a) subsidy
b) quota rent
c) voluntary export requirement
d) local content requirement
6-24
Review Question
Which of the following is not a political argument for
government intervention?
a) protecting jobs
b) protecting infant industries
c) protecting industries deemed important for
national security
d) protecting consumers from dangerous products
6-25
Review Question
What is the most common political reason for trade
barriers?
a) To protect infant industries
b) Strategic trade policy
c) To protect jobs
d) To protect industries that are important for
national security
6-26
Review Question
Which theory suggests that in cases where there may
be important first mover advantages, governments
can help firms from their countries attain these
advantages?
a) The infant industry argument
b) Strategic trade theory
c) Comparative advantage theory
d) The Leontief paradox
6-27
Review Question
All of the following except _____ are key issues
on the table at the Doha Round.
a) Anti-dumping policies
b) Protectionism in agriculture
c) Intellectual property rights
d) Infant industry protection
6-28