international trade II

Question 1

What is the infant industry argument?

Answer 1

infant firms should receive protection until it has the ability to specialise in a good with a comparitive advantage (temporary)

Question 2

What are ideas against the infant industry argument?

Answer 2

• hard to select firms and producers
• industries may deliberately not become efficient to continue to receive support

Question 3

What is an infant industry?

Answer 3

small domestic industry that has not yet had time to establish itself and achieve efficiencies in production, so is unable to compete

Question 4

What is the national defence argument?

Answer 4

certain industries which are essential should be protected so that a country is able to produce it by itself without relying on imports in times of war and national emergency

Question 5

What are ideas against the national defence argument?

Answer 5

• hard to know which goods and services are essential
• political and millitary decision

Question 6

What is the diversification argument?

Answer 6

trade protection would allow LEDC’s to increase it’s variety of goods and services it trades to create economic growth

Question 7

What are ideas against the diversification argument?

Answer 7

• only applies to LEDC’s
• hard for successful diversification

Question 8

How can trade protection link to health and safety standards?

Answer 8

countries may have standards or health and safety requirements on goods and services that are imported from abroad

Question 9

What are ideas against health and safety standards?

Answer 9

can be used as a hidden measure to control trade and keep demerit goods out

Question 10

What is the anti-dumping argument?

Answer 10

country should have the right to trade protection to limit imports of goods and services that are dumped

Question 11

What is dumping?

Answer 11

practice of selling a good in international markets at a price much lower than the cost of producing it

Question 12

What is the WTO?

Answer 12

multilateral organisation focusing on non discrimination which is a fundamental principle for the development of free trade globally

Question 13

How can tariffs act as a source of revenue?

Answer 13

LEDC’s rely on tariffs as a source of revenue as it is related to the ease at which imports can be taxed as they are goods that must be taxed and monitored

Question 14

What are ideas against tariffs acting as a source of revenue?

Answer 14

• regressive tax
• poor income distribution
• only a temporary measure

Question 15

How can trade protection correct a balance of payment deficit?

Answer 15

limits imports and therefore payments to to other countries, reducing money outflows
- risk of retaliation

Question 16

What is unfair competition?

Answer 16

practices that countries may use in order to gain a competitive advantage to unfairly increase exports at the expense of other countries

Question 17

What are examples of unfair competition?

Answer 17

• dumping
• administrative barriers
• violation of intellectual property
• undervalued currency
• subsidies for mature firms

Question 18

How can trade protection protect domestic jobs?

Answer 18

increases domestic production and employment
- risk of retaliation
- higher cost of production of inputs are imported

Question 19

What are the negative impacts of trade protection?

Answer 19

• producers face higher costs and reduced efficiency
• consumer face higher prices and less choice
• worse income distribution and allocation of resources
• foreign producers lose export revenue
• corruption and trade wars through retaliation
• negative impact on price level, GDP and employment

Question 20

What is economic integration?

Answer 20

economic co-ordination between countries and co-operation of economic policies to increase economic links

Question 21

What is a preferential trade agreement? (PTA)

Answer 21

trade agreement between 2 or more countries to lower trade barriers on particular products in trade with each other
- can include co-operation in labour standards

Question 22

What are bilateral, multilateral and regional trade agreements?

Answer 22

bilateral - trade agreements between 2 countries
multilateral - trade agreements between multiple countries
regional - trade agreements within a specific geographical region

Question 23

What is a free trade agreement?

Answer 23

a group of countries agree to gradually eliminate trade barriers
- may cause countries with low barriers to sell to countries with high external barriers (rules of origin imosed)

Question 24

What is a customs union?

Answer 24

a group of countries that fulfills the requirements of free trade areas as well as adopting a common policy with non members

Question 25

What are rules of origins?

Answer 25

the criteria needed to determine the national source of a product

Question 26

What are the advantages and disadvantages of a customs union?

Answer 26

advantages - no creation of rules of origins
disadvantages - disagreements and requires a high level of economic integration

Question 27

What is trade creation?

Answer 27

high cost domestic products are replaced with low cost imports, increasing social welfare

Question 28

What is trade diversion?

Answer 28

lower cost imports are replaced by higher member domestic producers and reduces social welfare

Question 29

What is a common market?

Answer 29

countries in a customs union remove all trade barriers with a common external policy and remove restrictions on all factors of production between them

Question 30

What are the advantages and disadvantages of a common market?

Answer 30

advantages - free trade, easy movement of factors of production
disadvantages - governments give up decision-making authority to a central bank

Question 31

What are the advantages to trading blocs?

Answer 31

• trade creation
• political advantage and bargaining power
• increased investment and employment opportunities
• improved resource allocation and efficiency in production
• economic growth
• lower prices and greater choices due to economies of scale
• increased competition
• expansion into larger markets

Question 32

What are the disadvantages to trading blocs?

Answer 32

• trade diversion
• loss of sovereignty
• unequal distribution of possible gains and losses
• challenge to multilateral trading negotiations

Question 33

What is monetary union?

Answer 33

members of a common market adopt a common currency and central bank where all decisions are made

Question 34

What are the advantages and disadvantages of a monetary union?

Answer 34

advantages - price transparency, easy to trade
disadvantages - loss of independence, vulnerability to shocks

Question 35

Why is it a higher form of integration?

Answer 35

countries have to agree to a number of factors such as inflation rates and loses its ability to control money supply and value to the central bank

Question 36

What are the WTO’s 6 objectives and functions?

Answer 36

1. administers and implements WTO trade agreements
2. provides a forum for trade negotiation
3. handles trade disputes
4. monitors national trade policies
5. provides technical assistance and training for developing countries
6. facilitates co-operation with other international organisations

Question 37

What are criticisms and challenges of the WTO’s influence in international trade?

Answer 37

• accused of promoting trade rules that don’t favor developing countries
• accused of not being able to distinguish between developing and non developing countries
• accused of ignoring environmental and labour issues
• unable to reach an agreement on agricultural protection and services
• WTO members have unequal bargaining powers
• fragmentation of global trade
• blocking of it’s powers to resolve disputes