Government Intervention in Trade
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What is one of the primary reasons governments impose tariffs and trade barriers?

  • To discourage technological advancements
  • To enhance foreign competition in domestic markets
  • To promote job growth and economic development (correct)
  • To increase the price of foreign goods unnecessarily

    • Which argument is used by proponents of protectionism regarding advanced economies?

  • Advanced economies have more technological expertise.
  • All countries benefit equally from open trade.
  • Trade barriers improve the quality of imports.
  • Low-cost labor in developing countries undermines competition. (correct)

    • What is a potential consequence of implementing protectionist measures?

  • Higher costs for local consumers (correct)
  • Enhanced technological collaboration
  • Improved international relations
  • Increased domestic competition

    • What is a challenge faced by industries relying on protection from competition?

    <p>Removing government incentives after gaining protection</p> Signup and view all the answers

    Why might an infant industry require government protection?

    <p>Due to a lack of experience and economies of scale</p> Signup and view all the answers

    Which country successfully developed its automobile industry through protectionist measures?

    <p>Japan</p> Signup and view all the answers

    What is a criticism of protectionism related to international trade?

    <p>It hinders country-specific specialization of labor.</p> Signup and view all the answers

    What might happen if a government imposes tariffs on imported goods?

    <p>Foreign governments may retaliate with their own tariffs.</p> Signup and view all the answers

    What is one major consequence of prolonged government protection for infant industries?

    <p>Higher taxes and higher product prices</p> Signup and view all the answers

    Which of the following is a reason for countries to impose trade restrictions for national security?

    <p>To retain domestic production of critical products</p> Signup and view all the answers

    Which of the following industries is considered a high-value-adding industry?

    <p>Information technology</p> Signup and view all the answers

    What is a possible negative outcome of poor choices in industry support policies?

    <p>Continuous subsidization of underperforming industries</p> Signup and view all the answers

    What is one negative impact of government intervention on developing economies?

    <p>Higher levels of taxation</p> Signup and view all the answers

    What type of products are typically subject to export controls due to security concerns?

    <p>Nuclear and military technology</p> Signup and view all the answers

    How did the U.S. government respond to foreign acquisitions of culturally significant entities?

    <p>By blocking foreign investments in certain areas</p> Signup and view all the answers

    What type of tariff is levied on the value of the imported product as a percentage?

    <p>Ad valorem tariff</p> Signup and view all the answers

    What significant agreement replaced GATT in 1995?

    <p>World Trade Organization</p> Signup and view all the answers

    How did Japan respond to industrialization after World War II?

    <p>With an export-led development strategy</p> Signup and view all the answers

    What strategy is used to encourage the development of key industries within a nation’s economy?

    <p>Government intervention in industrial policy</p> Signup and view all the answers

    Which of the following best describes a prohibitive tariff?

    <p>A tax high enough to stop imports completely</p> Signup and view all the answers

    Which is an example of a country that promotes high-tech industries?

    <p>Germany</p> Signup and view all the answers

    What should firms do first in response to government intervention?

    <p>Research trade and investment barriers</p> Signup and view all the answers

    Which of the following represents a national culture and identity concern regarding trade?

    <p>Foreign ownership of critical cultural sites</p> Signup and view all the answers

    What is the main focus of export controls imposed by governments?

    <p>To manage exports of sensitive products</p> Signup and view all the answers

    What is the primary goal of a protective tariff?

    <p>To shield domestic industries from foreign competition</p> Signup and view all the answers

    What is the role of foreign trade zones for firms facing trade barriers?

    <p>To receive preferential tariff treatment on imports</p> Signup and view all the answers

    What rationale does a government use to restrict imports of essential products to preserve local culture?

    <p>Cultural heritage protection</p> Signup and view all the answers

    According to the historical evolution of government intervention, which decade saw a reduction of trade barriers worldwide?

    <p>1930s</p> Signup and view all the answers

    In what scenario are import barriers most effective?

    <p>In import-intensive industries that require significant labor</p> Signup and view all the answers

    What is a revenue tariff designed to accomplish?

    <p>To raise government revenue through imported goods</p> Signup and view all the answers

    What is a common government response during a financial crisis related to banking?

    <p>Increased government regulations</p> Signup and view all the answers

    What is an appropriate entry strategy for firms when facing substantial trade barriers?

    <p>Foreign direct investment or joint ventures</p> Signup and view all the answers

    What is the primary advantage of using Foreign Trade Zones (FTZs)?

    <p>Exemption from duties, taxes, or quotas until entering non-FTZ territory.</p> Signup and view all the answers

    Which of the following best describes a 'maquiladora'?

    <p>An export-assembly plant that produces components for the U.S. market.</p> Signup and view all the answers

    Why do firms utilize FTZs for inventory management?

    <p>To defer duties on materials and products until they are used or sold.</p> Signup and view all the answers

    What is one way manufacturers can minimize trade barriers when exporting products?

    <p>By modifying products to classify them under the lowest tariff code.</p> Signup and view all the answers

    Where are Foreign Trade Zones (FTZs) typically located?

    <p>Near seaports or airports.</p> Signup and view all the answers

    What is a potential benefit of the USMCA for firms in relation to FTZs?

    <p>Access to low-cost labor and favorable duties.</p> Signup and view all the answers

    What happens to products brought into an FTZ once they enter the non-FTZ commercial territory?

    <p>They are immediately subjected to tariffs.</p> Signup and view all the answers

    Which of these products could be classified under multiple categories to lower tariff costs?

    <p>Telecommunications equipment.</p> Signup and view all the answers

    Study Notes

    Government Intervention in Trade

    • Rationale for government intervention:
      • Economic, political, or social objectives: Increase employment, promote economic development, protect national security.
      • Serve company and industrial interests: Stimulate development of home-grown industries.
    • Defensive Rationale for Intervention:
      • Protection of the national economy:
        • Proponents argue: Protect domestic industries from low-cost labor competition.
        • Critics argue: Protectionism violates the theory of comparative advantage, reduces product availability and affordability, and risks retaliatory measures.
      • Protection of an infant industry:
        • Provides temporary protection for emerging industries to develop experience, technology, and economies of scale.
        • Examples: Japan's automotive industry, South Korea's consumer electronics, U.S. solar power industry.
        • Challenges: Removing protectionism is difficult, can lead to prolonged dependence on government intervention, and potential industry inefficiencies.
      • National Security:
        • Impose restrictions on products critical to national defense (military technology, computers, etc.).
        • Example: Russia blocked Siemens purchase of Russian turbine manufacturer due to national security concerns.
        • Export controls: Governments can restrict the export of certain products or trade with specific countries to preserve national security.
        • Examples: Restriction of plutonium exports to North Korea, U.S. export restrictions on nuclear and military technology to countries deemed state sponsors of terrorism.
      • National Culture and Identity:
        • Protect occupations, industries, and public assets considered central to national culture, identity, and heritage.
        • Examples: U.S. opposition to Japanese investment in major businesses, France's restrictions on foreign ownership of TV stations, Switzerland's trade barriers to preserve watchmaking tradition, Japan's restrictions on rice imports.
    • Offensive Rationale for Intervention:
      • National Strategic Priorities:
        • Encourage development of industries bolstering the national economy (high-tech, high value-adding industries).
        • Examples: Germany, South Korea, Japan, Norway.
        • Implementation: Difficult to predict which industries will create a comparative advantage, leading to potential subsidization of underperforming industries.
      • Increase Employment:
        • Import barriers protect employment in designated industries.
        • By protecting domestic firms from foreign competition, national output is stimulated, leading to more jobs.
        • Examples: Joint venture between Shanghai Automotive and Volkswagen created jobs in China.

    Instruments of Government Intervention

    • Tariffs:
      • Export tariffs: Taxes on domestically exported products.
      • Examples: Russia charging a duty on oil exports to generate revenue and maintain oil stocks within Russia.
      • Import tariffs: Taxes levied on imported products.
        • Ad valorem tariffs: Assessed as a percentage of the value of the imported product.
        • Specific tariffs: Flat fee or fixed amount per unit of imported product based on weight, volume, or surface area.
        • Revenue tariff: Raises revenue for the government.
        • Protective tariff: Protects domestic industries from Foreign competition.
        • Prohibitive tariff: So high that no one can import the product.
    • Harmonized code (harmonized tariff): Standardized system classifying products according to 8,000 unique codes and assigning standardized tariffs accordingly.
    • Non-Tariff Barriers:
      • Quotas: Limit on the quantity of a specific product that can be imported during a specific time.
      • Voluntary export restraints (VER): Country voluntarily limits the quantity of a specific product it will export to another country.
      • Administrative delays: Government-imposed bureaucratic requirements that slow imports.
      • Embargoes/sanctions: Partial or complete prohibition of trade with a particular country.
    • Foreign Trade Zones (FTZs): Designated areas within a country where imports receive preferable tariff treatment.
      • Products are not subject to duties or taxes until they enter the non-FTZ commercial territory of the country.
      • Firms use FTZs for:
        • Assembly of foreign materials into finished products for re-export.
        • Inventory management of parts, components, or finished products.
      • Examples: Japanese carmakers store vehicles at Jacksonville port, Colon Free Zone in Panama.
        • Maquiladoras: Export-assembly plants in northern Mexico that produce components and finished products for the U.S. market.
    • Seek favorable customs classifications for exported products:
      • Reduce exposure to trade barriers by classifying products according to the appropriate harmonized product code.
      • Manufacturers may modify exported products to ensure they are classified under the lowest tariff code.
      • Example: South Korea's quota on non-rubber footwear exports to the U.S.

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    Description

    This quiz explores the rationale behind government intervention in trade, focusing on economic, political, and social objectives. It also examines the defensive rationale for intervention, including the protection of the national economy and infant industries through examples from various countries. Test your understanding of trade policies and their implications.

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