Textbook Notes (363,135)
Australia (488)
Management (21)
MGC2120 (19)
Chapter 7

International Business – Chapter 7 – The political economy of International Trade.docx

3 Pages
Unlock Document

Monash University
Dr Lakmal Abeysekera

International Business – Chapter 7 – The political economy of International Trade Instruments of Trade policy Tariffs - is a tax levied on imports (exports) - fall in to 1: specific tariffs are levied as a fixed charge for each unit of a good imported. 2: ad valorem tariffs are levied as a proportion of the value of the imported good. - important to understand who suffers and who gains. - Firstly, tariffs are generally pro-producer and anti-consumer. Secondly, import tariffs reduce the overall efficiency of the world eco. Subsidies - is a government payment to a domestic producers. May take forms of cash grants, low-interest loans, tax breaks, and government equity participation in domestic firms. - Subsidies help domestic producers by 1: competing against foreign imports, 2: gaining export markets. - Agriculture has large subsidies compare to non-agriculture. - Main gains accrue to domestic producers. In reality, subsidies are not that successful at increasing the international competitiveness. Import quotas and voluntary export restraints - import quota: a direct restriction on some good’s quantity that may be imported into a country. - Tariff rate quota: hybrid of a quota and tariff. Lower tariff rate is applied to imports within the quota than those over quota. - Voluntary export: a quota on trade imposed by the exporting country, at the request of the importing country’s government. - Quota rent: the extra profit that producers make when supply is artificially limited by an import quota. Local content requirements - is a requirement that some specific fraction of a good be produced domestically. Can be expressed in either physical terms of in value terms. Also used in developed countries. - Limits foreign competition. Administrative policies - bureaucratic rules designed to make it difficult for imports to enter a country. Antidumping policies - dumping: selling goods in a foreign market at below their costs of production or selling goods in a foreign market at below their fair market value. - Is viewed as a method by which firms unload excess production in foreign markets. - The policies are designed to punish foreign firms that engage in dumping. Government intervention Political arguments for intervention - protect jobs and industries - national security: some industries are important for national security. - Retaliation - Protecting consumers: motivated to protect consumers from what was seen to be an unsafe product. - Furthering foreign policy objectives: grant preferential trade terms to a country with which it wants to build strong relations. Trade policy is used to pressure or punish rogue states that do not abide by internatio
More Less

Related notes for MGC2120

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.