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ATHENA ZATERDAG Flashcards

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1
Q

second economic argument for intervention: strategic trade policy

A
  • governments can help raise national income when a domestic firm gains first mover advantage
  • for example use subsidies in industries that the country could be good at (Boeing for example)
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2
Q

what are the two arguments AGAINST trade policy (government intervention in trade)

A
  1. retaliaton and trade war
  2. domestic policies
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3
Q

what are the two arguments AGAINST trade policy (government intervention in trade)

  1. retaliaton and trade war
  2. ..
A

if governments help domestic firms to create a dominant position in global industry, this can come at the expense of others, it can provoke retaliation (anti dumping policies and minimize trade distorting subsidies)

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4
Q

what are the two arguments AGAINST trade policy (government intervention in trade)

  1. retaliaton and trade war
  2. domestic policies
A

governments dont always act in the NATIONAL interest, interest groups may influence policy.

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5
Q

economic arguments for unrestricted free trade but governments are afraid to fully let go, why?

A

Governments are afraid to lower trade barriers on their own (unilaterally)

Why?

Because they worry that if they open up, but other countries don’t, then:

Their own industries will be hurt
They’ll be in a weaker or vulnerable position

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6
Q

economic arguments for unrestricted free trade but governments are afraid to fully let go, whats the solution?

A

GATT and WTO

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7
Q

explain the situation in the 18th century

A
  • corn law: placed a high tariff on imports of foreign corn to increase government revenues and protect British corn producers
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8
Q

corn law

A

corn law: placed a high tariff on imports of foreign corn in the 18th century to raise revenue for the government and protect British corn producers

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9
Q

who made the case for free trade, which thinkers?

A

Adam smith and David Ricardo

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10
Q

what happened in the middle of the 17th century in brittain

A

they moved towards free trade BUT OTHER COUNTRIES DID NOT

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11
Q

Smoot-Hawley Act (USA, 1930s)

A

A U.S. law that raised tariffs very high on imports.

Goal: Protect U.S. jobs during the Great Depression by keeping out foreign goods.

other countries did this too as a reaction which made the Great Depression even worse.

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12
Q

what happened after the Great Depression in the US (1949-1979)

A

US embraced free trade and GATT was made to liberally trade by eliminating tariffs, educing subsidies and removing import quotas (took multiple rounds of negotiations).

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13
Q

1980 - 1993: protection again, why

A

even though there was free trade, countries found there way to protect their country again.
1. Japan exported a lot, and imported not much which made it unfair according to other countries (neo-mercantilism)

2.U.S. Trade Deficits: the us was selling more (import > export)

3.Rise of Non-Tariff Barriers (NTBs): because of GATT countries couldn’t use tariffs so they used other ways like bureaucratic policies (extra paperwork)

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14
Q

what happened after 1980-1993 when countries got more protected?

A

URUGUAY ROUND
they wanted to extend the GATT rules. also cover trade in services, reduce agricultural subsidies and strengthened GATTs monitoring and enforcement. so this was the start of

GATS and TRIPS

–> this lead to WTO

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15
Q

so Uruguay round led to

A

GATS, TRIPS and WTO

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16
Q

whats the role of the WTO
1. global police
2. expanded trade agreements

A
  1. global police: involved countries mostly adopted WTO’s recommendations, has + effect
  2. doesn’t only handle trade anymore also, foreign direct investment, telecommunications and financial services
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17
Q

The WTO (= free trade is good) encompasses:
Encompasses GATT and two other groups

A

GATS and TRIPS

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18
Q

whats the situation now of the WTO

A
  • 164 members
  • strong early start but atm unable to get new agreements
  • limited protectionism returns after 2008-2009
  • brexit and election of trump shift toward more protectionism
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19
Q

okay so the WTO can really make further adjustments because no agreement, so there was a new round in 2001: doha

A

is currently stalled, the agenda included cutting tariffs on industrial g/s, no subsidies for agriculture, reducing barriers to investment across borders, prevent countries from abusing antidumping laws

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20
Q

whats the CURRENT AGENDA of WTO

A
  1. protectionism of agriculture, make this stop
    2.Protection of Intellectual Property (TRIPS), it stops innovation so they want shorter period
    3.Market Access for Non-Agricultural Goods & Services, they want to cut these because it only is good for governments the tariffs
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21
Q

What is a multilateral trade agreement?

A

A trade deal between multiple countries aiming to reduce trade barriers and increase trade.

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22
Q

What is a bilateral trade agreement?

A

A trade deal between two countries to improve trade conditions between them.

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23
Q

Why do countries make multilateral and bilateral trade agreements?

A

To capture more gains from trade than what is currently possible under WTO rules.

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24
Q

Are these trade agreements allowed under WTO rules?

A

Yes, but countries must notify the WTO when they make such agreements.

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25
What are two major events that challenged belief in free trade?
1. Brexit – The UK leaving the European Union 2. Trump's election – Shift toward protectionism and withdrawal from trade deals
26
Why should an international manager care about trade barriers?
Because trade barriers like tariffs or quotas can raise export costs and hurt competitiveness in global markets
27
How can quotas affect a firm’s international strategy?
Quotas limit how much a firm can sell in a country, restricting market access.
28
What are local content requirements and why do they matter?
They require firms to use locally made components, which can increase costs and reduce flexibility.
29
Why might a firm relocate production?
To avoid future trade barriers or take advantage of free trade zones and lower costs.
30
floating exchange rate pegged exchange rate managed float (dirty float) fixed exchange rate dollarization
floating exchange rate: foreign market determines the relative value of a currency pegged exchange rate: currency value is fixed relative to a reference country managed float (dirty float): currency is influenced by market but also government fixed exchange rate: values of a set of currencies are fixed against each other dollarization: abandons its own currency and adopts another
31
What is the Gold Standard?
A system where countries peg their currencies to gold and guarantee they can be converted into gold.
32
When was the gold standard adopted?
In the 1880s by most major nations.
33
What were the three functions of gold under the standard?
Medium of exchange Unit of account Store of value
34
What is “gold par value”?
The amount of a country’s currency needed to buy one ounce of gold.
35
Why did the gold standard support balance of trade equilibrium?
Because countries couldn't print unlimited money — trade had to balance since money was tied to a limited gold supply.
36
Why did the gold standard collapse?
1. Countries printed money to finance wars, --> This caused devaluation, --> Led to loss of confidence and competitive devaluation (each country tried to weaken its currency to help exports).
37
What happened between WWI and WWII (1918–1939)?
Countries abandoned and returned to the gold standard but couldn’t maintain it. By 1939, the gold standard was completely gone.
38
What replaced the gold standard after WWII?
The Bretton Woods Conference (1944) created: IMF World Bank
39
Bretton woods system
IMF and world bank
40
IMF
- everyone was printing money, it was all over the place so the IMF got developed - concerned with CURRENCIES - discipline (maintaining a FIXED RATE) and flexibility (lending) - lender at last resort - they want you to return something so countries would rather not go here (like specific policies for example) - lend money to ALL COUNTRIES who are usually doing fine but have some problems (after crisis for example)
41
world bank
- initially helps reconstruct the war-torn economies of Europe - helps developing countries
42
world bank has 2 schemes
IBRD: raising money with bonds to support suffering countries, and the countries have to give something in return IDA: it lends money only to developing countries
43
make the table for IMF vs world bank
44
up until the Vietnam war what kind of rate was there
a fixed rate
45
the fix rate eventually collapsted AFTER THE VIETNAM WAR, why?
during the war the US printed a lot of money and trade imbalance (import < export) the dollar was tied to gold up until now
46
present Nixon announced something about the US dollar and gold in 1971, what was that
Switched to temporary float system, this became eventually permanent
47
the announcement of Nixon in 1971 to use a temporary float system, lead to two things:
1. Jamaica agreement --> IMF - no gold anymore - floating rates were accepted - IMF quotas increased 2. exchange rate - more volatile and LESS predictable --> so change to MANAGED FLOATING SYSTEM (but still unpredictable and volatile)
48
Jamaica agreement (focus on IMF)
after Nixton announced the temporary floating system - IMF quote increased - no gold anymore - the floating system was accepted
49
Louvre accord 1987
was an agreement to limit wild currency swings by allowing government intervention when needed — keeping the managed float system more stable.
50
Monetary Policy Autonomy
floating: autonomy, countries can set own interest rate fixed: limited, must maintain exchange rate
51
crisis recovery
floating: Better – exchange rate can adjust to help recovery. fixed:Slower – harder to recover due to fixed currency.
52
flexibility
floating: high, adjust to market forces fixed: rate must be defended
53
Stability & Predictability
floating: More volatile and uncertain. fixed:More stable and predictable for trade/investment
54
Speculation Risk
float: High – traders may cause large swings. fixed: Lower – more stable if system is trusted
55
controls its money supply carefully to avoid inflation
float:Risk of overspending/inflation. fixed:Encourages control over inflation and money supply
55
Inflation Control
Floating: Weak – may lead to inflation if currency drops too much. Fixed: Stronger – tied to disciplined money policy.
55
Trade Balance Adjustment
Floating: Easier – currency can weaken to fix deficit. Fixed: Harder – can't devalue easily.
55
speculation
when people buy or sell something (like currency) just to make a quick profit, not because they actually want it
56
Why do countries use pegged exchange rates?
To stabilize their currency and control inflation by following a stronger currency.
56
What is a pegged exchange rate?
A country fixes its currency's value to a major currency like the U.S. dollar.
56
What is a currency board?
A system where a country guarantees to exchange its currency at a fixed rate and holds 100% reserves to back it.
56
How does a currency board control money supply?
It can only issue more domestic money if it has foreign currency to match it.
57
bretton woods
stopped using gold, fixed rate, IMF and world bank
58
eventually Bretton woods collapsed, what happpened
- countries switched to floating rate - countries started borrowing private money instead of IMF funds
59
the switch uo from Bretton woods to floating led to three crises:
1. currency crisis: A sharp fall in a currency’s value due to speculative attack. 2. banking crisis: A loss of trust in banks, causing people to withdraw money in panic. 3. foreign debt crisis: When a country can’t repay its foreign debt (government or private).
60
causes of the three crises after the Bretton wood era and the change to floating exchange
* High relative price inflation rates. * Widening current account deficit. * Excessive expansion of domestic borrowing. * High government deficits. * Asset price inflation.
61
What is a criticism of IMF's "one-size-fits-all" policy?
It may not work in countries with different economic conditions.
62
What is “moral hazard” in IMF lending?
Countries may act irresponsibly, thinking the IMF will rescue them.
62
did the IMF always held good accountability
no! IMF lacks expertise required to do a good job
63
Why must companies care about currency management?
Because exchange rates change unpredictably, affecting costs, profits, and competitiveness.
63
so three problems with IMF
1. inappropriate policies 2. moral hazard 3. lack of accountability
64
How can companies stay flexible with currencies?
By diversifying production, outsourcing, and using hedging strategies.
65
What role can international businesses play in policy?
They can promote a stable monetary system that limits damaging currency fluctuations.

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