Question 1

The domestic politics of international trade are asymmetric due to sunk resources and the rents on those resources.

Accepted Answer

Sunk resources are investments that cannot be recovered if a firm or country exits a market, such as specialized equipment or infrastructure. The existence of sunk resources leads to asymmetric domestic politics of international trade since those who have invested in these resources have a strong incentive to protect their investments and seek rent from them. This creates winners and losers in the domestic economy, which can lead to political pressure for protectionism or other trade policies that benefit the particular group with sunk resources.

Question 2

Trade policy consists of agreements among countries, domestic laws pertaining to international trade, and procedures for administering those laws and resolving disputes.

Accepted Answer

Trade policy involves various agreements among countries, domestic laws related to international trade, and the administration of those laws and settlement of disputes.

Question 3

The Kennedy Round of GATT negotiations incorporated provisions in Article VI allowing domestic laws to include antidumping measures.

Accepted Answer

The Kennedy Round of GATT negotiations did incorporate provisions in Article VI allowing domestic laws to include antidumping measures. This was seen as a victory for developed countries who were experiencing a surge of imports from developing countries at lower prices, and were concerned about the impact on their domestic industries.

Question 4

The competitive theory of international trade is based on the losses from trade.

Accepted Answer

The competitive theory of international trade is based on the gains from trade, as it emphasizes the idea that countries can benefit from specializing in the production of goods in which they have a comparative advantage and then trading with other countries.

Question 5

The focus of the Tokyo Round of GATT was on agricultural subsidies.

Accepted Answer

The focus of the Tokyo Round of GATT was on reducing tariffs and non-tariff barriers to trade, as well as addressing issues related to textiles, raw materials, and intellectual property. Agricultural subsidies were not a major focus of this round of negotiations.

Question 6

The theory of comparative advantage is based on the assumption of perfectly competitive markets.

Accepted Answer

The theory of comparative advantage operates under the assumption of perfect competition in markets. This is necessary for the theory to work, as it assumes that all resources are fully employed in the most efficient way possible.

Question 7

TRIPS, or Trade Related Aspects of Intellectual Property Rights, provides a narrow protection to intellectual property and is, thus, excluded from the WTO dispute settlement system.

Accepted Answer

TRIPS is not excluded from the WTO dispute settlement system, but rather is included in it. TRIPS sets the minimum standards for intellectual property protection that WTO members must meet, and disputes over its implementation can be subject to the WTO's dispute settlement process.

Question 8

Gains from trade are evident when one country can produce a good more efficiently than another country, and the latter country can produce a different good more efficiently than can the former country.

Accepted Answer

This is the principle of comparative advantage, which states that both countries can benefit from trade by specializing in producing the good they can produce most efficiently and trading with each other.

Question 9

The central principle of the WTO agreements is manifested in the most favored nation (MFN) requirement that each signatory accord all other signatories the most favorable terms for trade provided to any country.

Accepted Answer

This statement is true. The MFN principle is a cornerstone of the WTO agreements and requires all WTO members to treat each other equally in terms of trade policies and agreements. This means that any favorable treatment offered to one member country must be extended to all other members, ensuring a level playing field for international trade.

Question 10

Agriculture has been the sector with the smallest distortions in trade.

Accepted Answer

While agriculture has traditionally had lower levels of trade distortions compared to other sectors such as manufacturing, it still faces some form of protectionism and subsidies from various countries. The level of trade distortions in agriculture can vary depending on the specific product and country involved.

Question 11

The focus of international trade policy through the 1960s was on tariffs.

Accepted Answer

Tariffs were the main focus of international trade policy in the 1960s, as countries sought to protect their domestic industries from foreign competition by raising tariffs and other trade barriers. This focus began to shift in the 1970s towards non-tariff barriers and other issues, such as intellectual property rights and labor standards.

Question 12

The Smoot-Hawley Act of 1930 helped reduce the depth and duration of the Great Depression by decreasing tariffs dramatically.

Accepted Answer

The Smoot-Hawley Act of 1930 actually increased tariffs, which many economists believe worsened the Great Depression by reducing international trade and causing other countries to retaliate with their own protectionist measures.

Question 13

The theory of comparative advantage implies that intervention by governments in perfectly competitive domestic or international markets will increase aggregate well-being.

Accepted Answer

The theory of comparative advantage suggests that free trade and specialization lead to higher aggregate well-being. Intervention by governments in markets can lead to distortions and inefficiencies, rather than increasing aggregate well-being.

Question 14

In the aftermath of World War II, the sudden increase in trade barriers was largely the result of U.S. hegemony.

Accepted Answer

The sudden increase in trade barriers after World War II was actually a result of the breakdown of international cooperation and the rise of nationalistic policies in many countries, not just due to U.S. hegemony. The U.S. did play a role in this trend, but it was not the sole cause.

Question 15

A number of regional trade agreements such as the North American Free Trade Agreement (NAFTA) and the treaties that established the single market in the European Union, have reduced barriers and increased trade.

Accepted Answer

The statement is true. Regional trade agreements such as NAFTA and the treaties that established the single market in the European Union have indeed reduced barriers and increased trade.

Question 16

In the absence of trade, the consumption possibilities of each country are its own production possibilities.

Accepted Answer

In the absence of trade, a country can only consume what it is able to produce domestically, which is restricted by its own production possibilities.

Question 17

At the conclusion of World War II, a group of countries led by the United States established the International Trade Organization (ITO)..

Accepted Answer

This statement is true. The International Trade Organization (ITO) was established after World War II, with the United States playing a leading role in its formation. However, the ITO never actually came into existence due to political and economic disagreements between member countries, and its functions were eventually assumed by the General Agreement on Tariffs and Trade (GATT).

Question 18

Trade policy does not depend on the market and nonmarket strategies of private interests.

Accepted Answer

Trade policy can be influenced by the market and nonmarket strategies of private interests, as they may lobby or advocate for certain policies that benefit their industries or businesses.

Question 19

The General Agreement on Trade in Services (GATS) covers all services and provides for MFN and national treatment.

Accepted Answer

The statement is correct. The General Agreement on Trade in Services (GATS) is a multilateral agreement of the World Trade Organization (WTO) that covers all services sectors and aims to promote liberalization and fair competition in the global market. It provides for the Most-Favored Nation (MFN) principle, which means that each member country must treat all other member countries equally, and the National Treatment principle, which means that foreign suppliers must receive the same treatment as domestic suppliers in terms of regulations, taxes, and other policies.

Question 20

The law of comparative advantage provides the basic rationale for free trade-all countries, even those with an absolute disadvantage, can gain from trade.

Accepted Answer

The law of comparative advantage states that even if a country has an absolute disadvantage in producing all goods, it can still benefit from trade by specializing in and exporting the goods in which it has a comparative advantage, and importing goods in which other countries have a comparative advantage. Thus, it provides the basic rationale for free trade.

Quiz 19: The Political Economy of International Trade Policy