Deck 6: International Trade

Question 1

A nation's attempts to protect local jobs and avoid high unemployment is a __________ motive in government intervention in trade.

Answer 1

agricultural sector

Question 2

Discuss the benefits and drawbacks of strategic trade policy.How are the drawbacks of subsidies as a method of promoting trade similar to the drawbacks of strategic trade policy?

Answer 2

Specific examples of companies and/or countries to illustrate your answers can be drawn from the textbook,class discussions,Internet,and/or newspapers and other publications.
Benefits of Strategic Trade Policy.Supporters of strategic trade policy argue that it results in increased national income.Companies should earn a good profit if they obtain first-mover advantages and solidify positions in their markets around the world.Advocates claim that strategic trade policies helped South Korea build global conglomerates (called chaebol)that dwarf competitors.For years,South Korean shipbuilders received a variety of government subsidies,including low-cost financing.The chaebol helped South Korea to emerge strongly from the global economic crisis because of their market power and the wide range of industries in which they compete.Such policies had spin-off effects on related industries,and local suppliers to the chaebol are now thriving.
Drawbacks of Strategic Trade Policy.Although it sounds as if strategic trade policy has only benefits,there can be drawbacks as well.Lavish government assistance to domestic companies in the past caused inefficiency and high costs for both South Korean and Japanese companies.Large government concessions to local labour unions hiked wages and forced Korea's chaebol to accept low profit margins.
In addition,when governments decide to support specific industries,their choice is often subject to political lobbying by the groups seeking government assistance.It is possible that special interest groups could capture all the gains from assistance with no benefit for consumers.If this were to occur,consumers could end up paying more for lower-quality goods than they could otherwise obtain.
Like strategic trade policy,government subsidies can also encourage complacency in an industry and prevent it from becoming competitive internationally.Critics say that subsidies encourage inefficiency and complacency by covering costs that truly competitive industries should be able to absorb on their own.Many believe subsidies benefit companies and industries that receive them but harm consumers because they tend to be paid for with income and sales taxes.Thus,although subsidies provide short-term relief to companies and industries,whether they help a nation's citizens in the long term is questionable.

Question 3

Industries that are just emerging and may require protection from international competition during their development phase are called _________________.

Answer 3

infant industries

Question 4

Describe how embargoes work and why they are seldom used today.

Question 5

Describe in detail each instrument governments use to promote trade

Question 6

____________ is a restriction on the amount of a good that can enter or leave a country during a certain period of time.

Question 7

Describe in detail each instrument governments use to restrict trade

Question 8

A complete ban on trade in one or more products with a particular country is called _______________.

Question 9

The new trade theory states that a country dominates the export of a product because it has a company that has acquired ______________________.

A)an absolute advantage
B)a patent and a trademark
C)a first-mover advantage
D)a subsidy for exporting

Question 10

What are voluntary export restraints and how are they used?

Question 11

A designated geographic region in which merchandise is allowed to pass through with lower customs duties and/or fewer custom procedures is called a(n)________.

Question 12

Explain how tariffs protect domestic producers,and describe how a foreign trade zone might offset the effects of tariffs.

Question 13

Foreign trade zones are often intended to increase ________ in a nation.

Question 14

Financial assistance to domestic producers in the form of cash payments,low-interest loans,tax breaks,product price supports,or some other form is called a(n)________.

Question 15

Describe the purpose of a foreign trade zone including how they are used to promote trade.

Question 16

The ________ finances the export activities of companies in Canada and offers them reasonably priced insurance.

Question 17

Explain the concept of subsidies and how they are used,including their disadvantages.In what ways does the protection of infant industries produce similar drawbacks?

Question 18

Explain in detail,with examples,the three categories of reasons why governments intervene in trade.