Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,6-,*,International Business,7e,by Charles W.L.Hill,McGraw-Hill/Irwin Copyright 2021 by The McGraw-Hill Companies,Inc.All rights reserved.,Chapter 6,The Political Economy of International Trade,Introduction,Free trade,occurs when governments do not attempt to restrict what its citizens can buy from another country or what they can sell to another country,While many nations are nominally committed to free trade,they tend to intervene in international trade to protect the interests of politically important groups,Instruments Of Trade Policy,The main instruments of trade policy are:,Tariffs,Subsides,Import Quotas,Voluntary Export Restraints,Local Content Requirements,Administrative Polices,Antidumping Policies,Tariffs,Tariffs,are taxes levied on imports that effectively raise 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,Tariffs increase government revenues,provide protection to domestic producers against foreign competitors by increasing the cost of imported foreign goods,and force consumers to pay more for certain imports,So,tariffs are unambiguously pro-producer and anti-consumer,and tariffs reduce the overall efficiency of the world economy,Subsidies,Subsidies are government payments to domestic producers,Consumers typically absorb the costs of subsidies,Subsidies help domestic producers in two ways:,they help them compete against low-cost foreign imports,they help them gain export markets,Classroom Performance System,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,Import Quotas And Voluntary Export Restraints,Import quotas,directly restrict 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 countrys government,A,quota rent,is the extra profit that producers make when supply is artificially limited by an import quota,Import quotas and voluntary export restraints benefit domestic producers by limiting import competition,but they raise the prices of imported goods,Local Content Requirements,A,local content requirement,demands that some specific fraction of a good be produced domestically,Local content requirements benefit domestic producers,but consumers face higher prices,Classroom Performance System,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,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,Antidumping Policies,Dumping refers to selling goods in a foreign market below their costs of production,or selling goods in a foreign market below their“fair market value,Dumping enables 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,Antidumping polices(or countervailing duties)are designed to punish foreign firms that engage in dumping and protect domestic producers from“unfair foreign competition,The Case For Government Intervention,Arguments for government intervention:,Political arguments,are concerned with protecting the interests of certain groups within a nation(normally producers),often at the expense of other groups(normally consumers),Economic arguments,are typically concerned with boosting the overall wealth of a nation(to the benefit of all,both producers and consumers),Political Arguments For Free Trade,Political arguments for government intervention include:,protecting jobs,protecting industries deemed important for national security,retaliating to unfair foreign competition,protecting consumers from“dangerous products,furthering the goals of foreign policy,protecting the human rights of individuals in exporting countries,Classroom Performance System,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,Protecting Jobs And Industries,Protecting jobs and industries is the most common political