Deck 7: Government Policy and International Trade

Question 1

A company that sells its product in a foreign market below the cost of production may be accused of dumping.

Answer 1

True
Explanation: In the context of international trade, dumping is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value.

Question 2

Krugman has suggested that trade policy designed to retaliate against another country's trade policy would hurt the citizens of both countries.

Answer 2

True
Explanation: Krugman argues that a strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry is a beggar-thy-neighbor policy that boosts national income at the expense of other countries. In many cases, the resulting trade war between two or more interventionist governments will leave all countries involved worse off than if a hands-off approach had been adopted in the first place.

Question 3

Unlike other trade policies,local content regulations tend to benefit consumers and not producers.

Answer 3

False
Explanation: Local content regulations provide protection for a domestic producer of parts in the same way an import quota does: by limiting foreign competition. As with all trade policies, local content regulations tend to benefit producers and not consumers.

Question 4

Bureaucratic rules designed to make it difficult for imports to enter a country are called local content requirements.

Question 5

Tariffs are unambiguously pro-consumer and anti-producer.

Question 6

Strategic trade policy suggests that a government should use subsidies to support promising firms that are active in newly emerging industries.

Question 7

Antidumping policies vary drastically from country to country.

Question 8

A subsidy helps domestic producers to compete against foreign imports.

Question 9

A common hybrid of a quota and a rent is known as a quota rent.

Question 10

Local content regulations provide protection for a domestic producer of parts by limiting foreign competition.

Question 11

According to the infant industry argument,many developing countries have a potential comparative advantage in manufacturing,but new manufacturing industries cannot initially compete with established industries in developed countries.

Question 12

The Helms-Burton Act of 1996 was aimed at foreign companies that were undermining U.S.trade sanctions against Libya and Iran.

Question 13

Export tariffs are far less common than import tariffs.

Question 14

Protecting industries deemed important for national security,and retaliating against unfair foreign competition are economic arguments for intervention.

Question 15

The Buy America Act specifies that government agencies must give preference to American products when putting contracts for equipment out to bid unless the foreign products have a significant price disadvantage.

Question 16

Under a tariff rate quota,a higher tariff rate is applied to imports within the quota than those over the quota.

Question 17

The infant industry argument is the latest argument for government intervention in trade.

Question 18

GATT has not recognized the infant industry argument as a legitimate reason for protectionism.

Question 19

Antidumping policies are designed to punish foreign firms that are engaged in dumping.

Question 20

Specific tariffs are levied as a proportion of the value of the imported good.

Question 21

The World Trade Organization was created as part of the Uruguay Round.

Question 22

One issue at the forefront of the current agenda of the WTO is the increase in tariff rates on nonagricultural goods and services in many nations.

Question 23

The threat of antidumping action limits the ability of a firm to use aggressive pricing to gain market share in a country.

Question 24

Tariff barriers lower the costs of exporting products to a country.

Question 25

Inadequate protections for intellectual property reduce the incentive for innovation.

Question 26

The WTO has the ability to force any member nation to take an action to which it is opposed.

Question 27

The Smoot-Hawley Act raised tariff barriers in the hope of protecting jobs and diverting consumer demand away from foreign products.

Question 28

Governments do not always act in the national interest when they intervene in the economy; politically important interest groups often influence them.

Question 29

A key goal of the 1986 Uruguay Round was to extend GATT to cover trade in commodities.

Question 30

WTO rules do not allow countries to impose antidumping duties on foreign goods that are being sold cheaper than at home,or below their cost of production,even when domestic producers can show that they are being harmed.

Question 31

The Great Depression had roots in the failure of the world economy to mount a sustained economic recovery after the end of World War I in 1918.

Question 32

Free trade in agriculture could jump-start economic growth among the world's poorer nations and alleviate global poverty.

Question 33

Antidumping actions are concentrated in certain sectors of the economy such as basic metal industries,chemicals,plastics,and machinery and electrical equipment.

Question 34

The WTO does not have the power to impose trade sanctions.

Question 35

To conform to local content regulations,a firm may have to locate more production activities in a given market than it would otherwise.

Question 36

During the 1980s and early 1990s,the world trading system erected by the GATT gained momentum as protectionist demands generally decreased across the world.

Question 37

A key issue in the "millennium round" of the WTO was to increase barriers to cross-border trade in agricultural products.

Question 38

Human rights activists see WTO rules as outlawing the ability of nations to stop imports from countries where child labor is used or working conditions are hazardous.

Question 39

The TRIPS regulations oblige WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years.

Question 40

Tariffs on industrial goods remain higher than tariffs on services.

Question 41

A quota rent is:

A) a quota on trade imposed by the exporting country.
B) levied as a fixed charge for each unit of a good imported.
C) levied as a proportion of the value of the imported good.
D) the extra profit producers make when supply is artificially limited by an import quota.

Question 42

_____ is a quota on trade imposed by the exporting country,typically at the request of the importing country's government.

A) Voluntary export restraint
B) Specific tariff quota
C) Trade reconciliation
D) Ad valorem tariff

Question 43

Tariffs do not benefit:

A) consumers.
B) domestic producers.
C) governments.
D) domestic firms.

Question 44

According to the Buy America Act,if a company wishes to win a contract from a U.S.government agency to provide some equipment,it must ensure that at least 51 percent of the product by value is manufactured in the United States.This is an example of:

A) antidumping duties.
B) voluntary export restraints.
C) import quotas.
D) local content requirements.

Question 45

A common hybrid of a quota and a tariff is known as a(n):

A) import tariff quota.
B) voluntary export restraint.
C) ad valorem tariff.
D) tariff rate quota.

Question 46

The Japanese government was pressurized by the U.S.government to place limits on the number of vehicles exported to the United States by Japanese automobile producers in 1981.This is an example of:

A) tariff rate quota.
B) specific tariffs.
C) voluntary export restraint.
D) ad valorem tariff.

Question 47

Which of the following is a consequence of subsidies?

A) Subsidies make domestic producers vulnerable to foreign competition.
B) Subsidies lead to lowered production.
C) Subsidies protect inefficient domestic producers.
D) Subsidies produce revenue for the government.

Question 48

Foreign producers typically agree to voluntary export restrictions because:

A) their manufacturing capacity is limited.
B) they can divert their exports to other countries and charge more for their products.
C) they fear far more damaging punitive tariffs or import quotas might follow if they do not.
D) they are required to by the World Trade Organization.

Question 49

Local content regulations:

A) protect domestic producers by limiting foreign competition.
B) lower the prices of imported components.
C) tend to benefit consumers and not producers.
D) encourage outsourcing of production units.

Question 50

Which of the following statements concerning a voluntary export restraint is NOT true?

A) It benefits domestic producers by limiting import competition.
B) In most cases, it benefits consumers.
C) It raises the domestic price of an imported good.
D) It is a variant of the import quota.

Question 51

By lowering production costs,_____ help domestic producers compete against foreign imports.

A) subsidies
B) duties
C) quotas
D) tariffs

Question 52

Specific tariffs are:

A) levied as a proportion of the value of the imported good.
B) government payment to domestic producers.
C) in the form of manufacturing or production requirements of goods.
D) levied as a fixed charge for each unit of a good imported.

Question 53

According to the _____ policy,subsidies can help a firm achieve a first-mover advantage in an emerging industry.

A) strategic trade
B) antidumping
C) tariff quota
D) free trade

Question 54

According to _____,some specific fraction of a good must be produced domestically.

A) import quotas
B) voluntary export restraints
C) local content requirements
D) antidumping duties

Question 55

Which of the following observations about subsidies is true?

A) Government subsidies must be paid for, typically by taxing individuals and corporations.
B) Subsidies are used to reduce exports from a sector, often for political reasons.
C) Whether subsidies generate national benefits that exceed their national costs is debatable.
D) Subsidies help foreign producers gain a competitive advantage over domestic producers.

Question 56

Import tariffs:

A) reduce the price of foreign goods.
B) create efficient utilization of resources.
C) reduce the overall efficiency of the world economy.
D) are unambiguously pro-consumer and anti-producer.

Question 57

Administrative trade policies are:

A) requirements that some specific fraction of a good be produced domestically.
B) quotas on trade imposed by the exporting country.
C) bureaucratic rules designed to make it difficult for imports to enter a country.
D) designed to punish foreign firms that engage in dumping.

Question 58

Tariff rate quotas are common in agriculture,where their goal is to:

A) reduce the use of synthetic fertilizers.
B) limit imports over quota.
C) increase agricultural imports.
D) increase foreign competition.

Question 59

_____ is a direct restriction on the quantity of some good that may be imported into a country.

A) Import tariff
B) Import quota
C) Import subsidy
D) Ad valorem tariff

Question 60

Which of the following is NOT one of the main instruments of trade policy?

A) Tariffs
B) Credit portfolios
C) Local content requirements
D) Administrative policies

Question 61

Which of the following is a reason for the pressure for greater protectionism that occurred during the 1980s and early 1990s?

A) The U.S. Congress erected an enormous wall of tariff barriers.
B) Japanese economic failure strained the world trading system.
C) The persistent trade surplus in the United States strained the world trading system.
D) Many countries found ways to get around GATT regulations.

Question 62

In 1997,two South Korean manufacturers of semiconductors,LG Semicon and Hyundai Electronics,were accused of selling dynamic random access memory chips (DRAMs)in the U.S.market at below their costs of production.It was alleged that the firms were trying to unload their excess production in the United States.This is an example of:

A) ad valorem tariff.
B) subsidy.
C) dumping.
D) import quota.

Question 63

Economic problems during the Great Depression were compounded in 1930 when the U.S.Congress passed the _____,aimed at avoiding rising unemployment by protecting domestic industries and diverting consumer demand away from foreign products.

A) Smoot-Hawley Act
B) Antidumping Act
C) Helms-Burton Act
D) D'Amato Act

Question 64

Until 1995,GATT rules applied to all of the following EXCEPT:

A) manufactured goods.
B) services.
C) textiles.
D) agricultural products.

Question 65

The U.S.government has used the threat of punitive trade sanctions to try to get the Chinese government to enforce its intellectual property laws.This is an example of government intervention based on:

A) human rights protection.
B) national security.
C) consumer protection.
D) retaliation.

Question 66

The TRIPS regulations established at the 1995 Uruguay Round:

A) established regulations on patents and copyrights.
B) set a new level of agriculture subsidies.
C) organized OECD countries to eliminate tariffs on textiles.
D) established new tariff levels on technology.

Question 67

According to the 1986 Uruguay Round,the _____ was to be created to implement the GATT agreement.

A) World Trade Organization
B) International Monetary Fund
C) United Nations
D) World Bank

Question 68

The Smoot-Hawley Act aimed at:

A) diverting consumer demand toward foreign products.
B) promoting unrestricted free trade.
C) limiting global warming.
D) avoiding rising unemployment.

Question 69

TRIPS regulations oblige WTO members to all of the following EXCEPT:

A) grant and enforce patents lasting at least 20 years.
B) grant and enforce copyrights lasting 50 years.
C) comply with the rules within five years in the case of rich countries.
D) comply with the rules within 10 years in the case of the poorest countries.

Question 70

The infant industry argument is criticized because it relies on an assumption that:

A) new manufacturing industries in developing nations can initially compete with established industries in developed countries.
B) selling goods in a foreign market at below their "fair" market value is legally and ethically justified.
C) the domestic industry in a developing nation lacks the capacity to meet demand.
D) firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital market.

Question 71

_____ are the highest rate that can be charged,which is often,but not always,the rate that is charged.

A) Ad valorem tariff rates
B) Tariff rents
C) Specific tariff rates
D) Bound tariff rates

Question 72

After the Uruguay Round of GATT extended global trading rules to cover trade in services,the first two industries targeted for reform by the WTO were:

A) textiles and technology.
B) telecommunications and financial services.
C) automotives and aerospace.
D) agriculture and consulting services.

Question 73

According to the strategic trade policy argument:

A) government intervention is not required because firms can borrow money from the capital markets to finance the required investments.
B) selling goods in a foreign market at below their "fair" market value is legally and ethically justified.
C) government support can help domestic firms overcome the first-mover advantages enjoyed by foreign competitors.
D) a government should use subsidies to support promising firms that are active in old, established industries.

Question 74

Identify the INCORRECT statement about trade barriers.

A) They raise the costs of exporting products to a country.
B) They may put a firm at a competitive advantage to indigenous competitors.
C) They may limit a firm's ability to serve a country from locations outside of that country.
D) To conform to local content regulations, a firm may have to locate more production activities in a given market than it would otherwise.

Question 75

The "millennium round" ended in 1999 with:

A) a successful record on agricultural products.
B) a new agenda for the next round focusing on financial services.
C) no agreement on the reduction of barriers to cross-border trade and investment.
D) a decision to avoid FDI.

Question 76

The WTO argues that removing tariff barriers and subsidies in the agricultural sector could:

A) protect domestic agriculture in developed nations.
B) lower the overall level of agricultural trade.
C) restrict global economic growth.
D) lower prices to consumers.

Question 77

_____ is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value.

A) Export restraint
B) Dumping
C) Local content requirement
D) Ad valorem

Question 78

Which of the following acts allows Americans to sue foreign firms that use property in Cuba confiscated from them after the 1959 revolution?

A) D'Amato Act
B) Smoot-Hawley Act
C) Helms-Burton Act
D) Antidumping Act

Question 79

According to the _____ argument,governments should temporarily support new industries until they have grown strong enough to meet international competition.

A) retaliatory action
B) human rights
C) infant industry
D) antidumping

Question 80

The Netherlands exported tulip bulbs to almost every country in the world except Japan.This was because in Japan,customs inspectors insisted on checking every tulip bulb by cutting it vertically down the middle.This is an example of which of the following trade barriers?

A) Export restraint
B) Administrative trade policies
C) Local content requirement
D) Ad valorem