Chapter 5 Flashcards
(17 cards)
What are nontariff trade barriers (NTBs)?
- NTBs are trade restrictions that do not involve tariffs
Examples: quotas, subsidies, content requirements, dumping laws - NTBs can distort trade and result in inefficiencies
Explain what an absolute import quota is, and its economic effects:
- Sets a physical limit on imports over a time period
- Reduces supply, raises prices, and limits consumer choice
Economic effects
-Price increase, decline in consumer surplus, windfall profits to license holders (quota rents)
-DWL losses:
Protective effect, Consumption effect
What are the Quota License Allocation Methods?
- Pro rata: importers receive shares proportionally
- Auction: Licenses sold to the highest bidder
- Methods affect who gains quota rents
What are the system and administration methods of a Tariff-Rate Quota (TRQ)?
Two-tier system:
- Within-quota imports: lower tariff
- Over-quota imports: higher tariff
Administration methods:
- First-come, first-serve
- Proportional allocation
- Historical share or auction
What are export quotas and voluntary export restraints (VERs) and their effects?
- Restrictions by exporting countries to limit exports, often negotiated under political pressure
Effects:
- Higher U.S. prices
- Profits captured by foreign producers
What are domestic content requirements?
-Mandates a certain % of value to be locally produced
-Aims to support domestic jobs and production
What are the drawbacks to domestic content requirements?
-Increased production costs
-Loss of competitiveness
-Cost passed to consumers
What are forms of domestic production subsidies?
- Cash grants
- Tax breaks
- Cheap loans
What are the effects of domestic production subsidies?
- More output and employment
- Redistribution of income to producers
- Deadweight loss, but smaller than tariffs
What do export subsidies do?
- Paid to exporters to encourage foreign sales
- Raise producer surplus
- Reduce consumer surplus - Funded by taxpayers
- Lead to overproduction and inefficiency
Definition of Dumping:
- Predatory pricing: selling below cost to drive out competition
- International price discrimination: Foreign price < domestic price
What are the conditions for dumping?
Must be able to:
- Segment markets
- Prevent arbitrage
- Face different demand elasticities
What are the three forms of dumping?
- Sporadic dumping: temporary surplus
- Predatory dumping: eliminate competitors
- Persistent dumping: Long-term profit strategy
What are the antidumping regulations?
U.S. Dept of Commerce: Below fair value?
ITC: Does it cause injury to the domestic industry?
Penalty: Antidumping duty added to the regular tariff
How do you measure dumping margins?
- Price-based method: Compare foreign price to U.S. price
- Cost-based method: Estimate foreign cost if price not available
What are the criticisms of antidumping laws?
- Protects domestic firms from the cost of consumers (consumers have to pay more for US product)
- May penalize legitimate competitive pricing
Are NTBs fair? What is the debate?
Supporters: level the playing field, protect jobs
Critics: Inefficiency, higher prices, global retaliation
