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ADM 3318 - Chapter 6 Notes - The Political Economy of International Trade.docx

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ADM 3318International BusinessOctober 2 2012Chapter 6 The Political Economy of International TradeInstruments of Trade PolicyTariffs A tax levied by governments on imports or exports1Specific Tariffs Levied as a fixed charge for each unit of good imported2Ad Valorem Tariff Levied as a proportion of the value of the imported goodIn most cases tariffs are placed on imports to protect domestic producers from foreign competition by raising the price of imported goodsTariffs also produce revenue for the governmentWho Gains Who SuffersThe government gains because the tariff increases government revenues Domestic producers gain because the tariff affords them some protection against foreign competitors Consumers lose because they must pay more for certain importsEconomic Conclusions1Tariffs are unambiguously proproducer and anticonsumer2Import tariffs reduce the overall efficiency of the world economy This is because it encourages domestic producers to produce goods that in theory could be produced more efficiently elsewhereExport Tariffs Much less common The objectives of such tariffs are 1 raise revenue for the government and 2 reduce exports from a sector often for political reasonsSubsidies Government financial assistance to a domestic producer Grants lowinterest loans tax breaks and government equity participation are all forms of subsidiesBy lowering
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