Deck 10: International Trade Policy

Question 1

What are strategic trade policies, and when can they become a problem?

Answer 1

Strategic trade policies are threats to implement tariffs to bring about a reduction in tariffs or some other concession from the other country. The potential problem with these policies is that they can backfire. In order for a strategic trade policy to work, the other side must believe that you'll go through with your threat. Thus, it can lead to a country that actually supports free trade to impose trade restrictions, just to show that it's committed to free trade.

Question 2

What has happened to the size of international trade (relative to US GDP) since the late 1920's? With what countries or regions does the United States trade the most?

Answer 2

The relative size of total world trade has been fluctuating since the late 1920s. Before the Great Depression, total world trade was around 60% of the U.S.'s GDP. The ratio had fallen to 20% by 1950. After that, world trade has grown rapidly in some years, and slowly in some other years. Today, world trade is around 220% of the U.S.'s GDP. World trade now amounts to more than 40 trillion dollars.
Exports to Canada and Mexico make up the largest percentage of total U.S. exports to individual countries. Imports from China and Canada make up the largest percentage of U.S. imports. The largest regions that the U.S. exports to are the Pacific Rim and the European Union.

Question 3

With what countries or regions does the United States trade the most?

Answer 3

As of 2008, exports to Canada and Mexico made up the largest percentage of total U.S. exports to individual countries. The largest regions to which the U.S. exports are the Pacific Rim and the European Union. Countries from which the United States imports major quantities are Canada and Mexico and the regions of the European Union and the Pacific Rim.

Question 4

What is the major reason why developing countries often impose tariffs on imports rather than quotas?

Question 5

List six reasons why countries impose trade restrictions.

Question 6

How can learning by doing and economies of scale play a role in deciding to impose trade restrictions? What name do we give to the argument for trade restrictions that is based on learning by doing and economies of scale?

Question 7

What are the six main methods used by governments to restrict trade?

Question 8

What role do appeals to national security play in arguments to justify trade restrictions? What forms do these restrictions take?

Question 9

What are trade adjustment assistance programs? Describe the arguments for and against them.

Question 10

President Trump instituted tariffs on many goods coming into the U.S. in 2018. What was most economists' view of those tariffs?

Question 11

Why are trade restrictions less likely to be imposed during a booming economy than during a recession?

Question 12

What are the benefits of being a debtor nation? What are the costs?

Question 13

What are free trade associations? Explain why they help or hinder international trade.

Question 14

There are four main reasons why economists typically oppose the use of trade restrictions. (1). From a global perspective, free trade increases total output. (2). International trade provides competition for domestic companies. (3). Restrictions based on national security are often abused. (4). Trade restrictions are addictive. Discuss each of these reasons.

Question 15

You are an influential CEO of a company like Wal-Mart, who imports foreign made clothing. The government wants to restrict the quantity of the product that your company imports. Should you use your political influence to lobby the Congress to impose a tariff on the product or a quota? Explain your answer.

Question 16

What does it mean for a country to be a debtor nation? What has to happen for a country to change from a debtor nation to a creditor nation?

Question 17

Eight reasons why countries impose trade restrictions are (1). Unequal internal distribution of the gains from trade. (2). Haggling by companies over the gains from trade. (3). Haggling by countries over trade restrictions. (4). Learning by doing and economies of scale. (5). Macroeconomic aspects of trade. (6). National security. (7). International politics. (8). Increased revenue brought in by tariffs. Discuss four of these reasons.

Question 18

Three policies used to restrict trade are: tariffs, quotas, and regulatory trade restrictions. Discuss each of these policies.

Question 19

Define the term "the trade balance." Does the United States have a trade balance that is in deficit or surplus? Explain your answer.

Question 20

Define tariffs and quotas, and explain the similarities and differences between them.

Question 21

Consider the following supply and demand diagram shown for a small domestic country. Note that at the world free-trade price of P* illustrated in the diagram, there are imports of Q₁ - Q₀. If a government wanted more tariff revenue, given the same tariff, t, would it desire elastic or inelastic demand of the imported good? Explain. Be sure to illustrate your explanation with an appropriate diagram.

Question 22

What is the WTO? What is the GATT? How are they related?

Question 23

What are the main reasons why economists typically oppose the use of trade restrictions?

Question 24

How are tariffs and quotas similar? How are they different? Explain verbally and demonstrate graphically.