THE POLITICAL ECONOMY OF INTERNATIONAL TRADE
INSTRUMENTS OF TRADE POLICY
1. TARIFFS – is a tax levied on imports or export.
Specific tariffs – are levied as a fixed charged for each unit of a good imported.
Ad valorem tariffs – are levied as a proportion of the value of the imported good.
2. SUBSIDIES – is a government payment to a domestic producer.
Subsidies help domestic producers in two ways: they help them compete against low-cost foreign imports they help them gain export markets
3. IMPORT QUOTAS – is a direct restriction on the quantity of some good that may be imported into a country.
Tariff rate quotas - are a hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota.
4. VOLUNTARY EXPORT RESTRAINTS - are quotas on trade imposed by the exporting country, typically at the request of the importing country’s government.
Quota rent - is the extra profit that producers make when supply is artificially limited by an import quota.
5. LOCAL CONTENT REQUIREMENT - demands that some specific fraction of a good be produced domestically.
6. ADMINISTRATIVE POLICIES - are bureaucratic rules that are designed to make it difficult for imports to enter a country.
7. ANTIDUMPING POLICIES - are designed to punish foreign firms that engage in dumping and protect domestic producers from “unfair” foreign competition.
Dumping - refers to selling goods in a foreign market below their costs of production, or selling goods in a foreign market below their “fair” market value .
The Case for Government Intervention
Arguments for government intervention:
Political arguments are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers)
Economic arguments are typically concerned with boosting the overall wealth of a nation (to the benefit of all, both producers and consumers)
Political arguments for government intervention
1. TARIFFS – is a tax levied on imports or export.
Specific tariffs – are levied as a fixed charged for each unit of a good imported.
Ad valorem tariffs – are levied as a proportion of the value of the imported good.
2. SUBSIDIES – is a government payment to a domestic producer.
Subsidies help domestic producers in two ways: they help them compete against low-cost foreign imports they help them gain export markets
3. IMPORT QUOTAS – is a direct restriction on the quantity of some good that may be imported into a country.
Tariff rate quotas - are a hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota.
4. VOLUNTARY EXPORT RESTRAINTS - are quotas on trade imposed by the exporting country, typically at the request of the importing country’s government.
Quota rent - is the extra profit that producers make when supply is artificially limited by an import quota.
5. LOCAL CONTENT REQUIREMENT - demands that some specific fraction of a good be produced domestically.
6. ADMINISTRATIVE POLICIES - are bureaucratic rules that are designed to make it difficult for imports to enter a country.
7. ANTIDUMPING POLICIES - are designed to punish foreign firms that engage in dumping and protect domestic producers from “unfair” foreign competition.
Dumping - refers to selling goods in a foreign market below their costs of production, or selling goods in a foreign market below their “fair” market value .
The Case for Government Intervention
Arguments for government intervention:
Political arguments are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers)
Economic arguments are typically concerned with boosting the overall wealth of a nation (to the benefit of all, both producers and consumers)
Political arguments for government intervention
References: 1. http://www.slideshare.net 2. http://www.investopedia.com 3. http://www.merriam-webster.com/dictionary/neo-mercantilism 4. Charles W.L. Hill (seventh edition), International Business: Competing in the Global Marketplace