BUS 200 - Governments and Trade Quiz

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Questions and Answers

What was one negative effect of the U.S. sugar quota on consumers?

Reduction in sugar prices

Increased availability of imported sugar

Higher prices for sugar products (correct)

Lower quality of domestic sugar

What is the main purpose of the General Agreement on Tariffs and Trade (GATT)?

To regulate prices of exported goods

To promote free trade and reduce trade barriers (correct)

To protect domestic industries exclusively

To impose trade barriers

Which of the following was a significant achievement of the GATT between 1947 and 1988?

Decreased volume of international trade

Creation of new nontariff barriers

Increase in tariff rates

Significant reduction in average tariffs (correct)

Which of the following trade instruments involves a quantifiable limit on trades?

Quotas Signup and view all the answers

What was a key challenge to GATT in the late 1980s?

Nontariff barriers affecting services Signup and view all the answers

Which cultural motive is primarily focused on maintaining a national identity?

Protection of national identity Signup and view all the answers

What is a primary purpose of subsidies in trade promotion?

To provide financial assistance to domestic producers Signup and view all the answers

Which program is specifically established to assist U.S. businesses in expanding internationally?

Export-Import Bank of the United States Signup and view all the answers

What is the main benefit of foreign trade zones?

Lower customs duties and fewer customs procedures Signup and view all the answers

How do trade-promotion agencies specifically aid small and medium-sized businesses?

By organizing trips to meet potential business partners Signup and view all the answers

Which of the following is not a form of export assistance provided by governments?

Direct market manipulation Signup and view all the answers

What specific cultural objective is Canada attempting to achieve in relation to U.S. cultural influence?

Mitigating the influence of U.S. entertainment products Signup and view all the answers

What does the term 'managed trade' refer to in the context of trade promotion?

Government efforts to achieve specific trade objectives Signup and view all the answers

Which round of GATT negotiations involved the highest number of countries?

Tokyo Round Signup and view all the answers

What was NOT a focus during the Uruguay Round of GATT negotiations?

Dumping measures Signup and view all the answers

What is one of the main goals of the World Trade Organization (WTO)?

Settle trade disputes among members Signup and view all the answers

During which GATT round were the 'framework agreements' first introduced?

Tokyo Round Signup and view all the answers

In which year did the Uruguay Round of negotiations, which led to the creation of the WTO, begin?

1986 Signup and view all the answers

Which of the following is a principle upheld by the WTO?

Normal trade relations Signup and view all the answers

What was covered in the GATT negotiations of the Kennedy Round?

Nontariff measures Signup and view all the answers

Which round of GATT negotiations took place the earliest?

First Round in Geneva Signup and view all the answers

What is a principal reason for governments to intervene in trade?

To protect jobs in domestic industries Signup and view all the answers

Which of the following represents a political motive for government intervention in trade?

Ensuring the availability of essential goods domestically Signup and view all the answers

What is an 'infant industry'?

An industry that requires protection to develop Signup and view all the answers

Strategic trade policy aims to benefit which of the following?

Domestic firms in globally competitive markets Signup and view all the answers

Which of the following is NOT considered an economic motive for trade intervention?

Preventing the rise of local businesses Signup and view all the answers

What is a potential outcome of unfair trade practices by foreign countries?

Circumvention of trade policies through alternative routes Signup and view all the answers

Which of the following best encapsulates the concept of free trade?

Trade occurring without tariffs or barriers Signup and view all the answers

Governments may restrict trade mainly to achieve which of the following?

Protect domestic producers from international competition Signup and view all the answers

Study Notes

Course Information

Course Title: BUS 200 - Governments and Trade
Course Description: This course covers the role of governments in international trade, including reasons for intervention, methods used to promote and restrict trade, and the features of the global trading system.

Learning Objectives

Explain why governments intervene in international trade.
List the instruments governments use to promote trade.
Describe the methods governments use to restrict trade.
Describe the main characteristics of the global trading system

Why Governments Intervene in Trade

Free trade involves no barriers, but governments often intervene to protect domestic industries, national security, and their own economic interests.
Reasons for intervention:
- Protecting jobs from foreign competition (e.g., loss of US manufacturing jobs to China and Mexico).
- Preserving national security (ensuring domestic production of essential goods).
- Protecting domestic producers from unfair trade practices.
- Gaining influence on other countries.

Economic Motives for Intervention

Protecting infant industries: Young industries need temporary protection from international competition to grow and develop.
Pursuing strategic trade policy: Governments aim to affect the outcomes of international competition to benefit domestic companies.

Cultural Motives for Intervention

Achieving cultural objectives: Governments may intervene to mitigate the influence of foreign entertainment products and protect national identity.
Protecting national identity: For example, France's protection of its language.

Instruments of Trade Promotion

Managed trade: Government attempts to achieve trade objectives relevant to market shares or quantities of specific products.
Subsidies: Financial support given to domestic producers in the form of cash payments, low-interest loans, tax breaks, price supports, etc. This is common in many countries.
Export assistance: Government support for domestic companies exporting goods, including low-interest loans, loan guarantees, and programs via organizations like the Export-Import Bank of the United States.

Instruments of Trade Promotion (Specific Programs)

City/State programs: Government financial support for expanding business abroad in specific locations.
Working Capital Loan Guarantee Program: Government financial assistance for businesses in need of working capital.
Credit Information Services: Provision of data on business creditworthiness.
Credit Insurance: Protecting businesses from losses due to non-payment.
Guarantee Program: Ensuring loans made to businesses will be repaid.
Direct loan programs: Making loans directly to businesses.
Foreign Trade Zones (FTZs): Designated geographic areas allowing merchandise to pass with reduced customs duties. Used for assembly and storage. Common in Mexico (maquiladoras).
Special Government Agencies: Agencies like the Japan External Trade Organization (JETRO) offer assistance, advice, and business connections for businesses seeking foreign trade.

Instruments of Trade Restriction

Tariffs: Taxes on imported goods.
Quotas: Numerical limits on the quantity of imported goods.
Embargoes: Complete bans on trade with a specific country or on certain goods.
Local Content Requirements: Rules mandating that a certain percentage of a product's components must be domestically sourced.
Administrative Delays: Deliberately slowing down the import or export process.
Currency Controls: Government restrictions on currency exchange to control imports and exports.

Global Trading System

World trade volume peaked in the late 1800s, but the Smoot-Hawley Act of 1930, which imposed tariffs, reduced trade.
The General Agreement on Tariffs and Trade (GATT) was a treaty created to promote free trade by reducing tariffs and other trade restrictions.
The GATT's initial rounds focused on tariffs, but later rounds included non-tariff barriers, services, intellectual property, etc.
The GATT evolved into the World Trade Organization (WTO): an international organization regulating global trade among nations.
Key WTO goals: Free trade flow, market opening, and dispute resolution
The WTO operates on the principle of non-discrimination among members.

Dispute Settlement in the WTO

Dumping is when a country sells products abroad at unfairly low prices. Countervailing duties are used to address this issue.
The WTO's Dispute Settlement Body handles disputes between countries concerning trade rules.

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Description

Test your knowledge on how governments influence international trade in this BUS 200 quiz. Explore the reasons for government intervention, promotional instruments, and methods of trade restriction. Assess your understanding of the global trading system's characteristics.