Chapter 7 - Government Policy and Trade

Tariffs

Taxes levied on imports

• Specific = charged as a fixed fee per physical unit or quantity

• Ad valorem = charged as a percentage of an import's value

Subsidies

Government payments to domestic producers (cash grants, low-interest loans) to help them:

• compete against low-cost foreign imports

• gain export markets

Generated from taxes, encourages over-production, inefficiency, and reduced trade

Import Quotas

Directly restrict the quantity of some good that may be imported into a country

Export Quotas

Imposed on the quantity of goods that may be exported within a given period, usually with the intent of keeping prices of those goods low for domestic users

Voluntary Export Restraint (VER)

Quota on trade imposed by the exporting country, typically at the request of the importing country’s government

Local Content Requirement

Demands that some specific fraction of a good be produced domestically

• % of component parts and % of the value of the good

• Tends to benefit producers, not consumers

Administrative Trade Policies

Bureaucratic rules that are designed to make it difficult for imports to enter a country

• Customs delays

• Can hurt consumers by limiting choice and blocking access to possibly superior foreign products

Antidumping Policies

Designed to punish foreign films that engage in dumping and to protect domestic producers from unfair foreign competiton

• Selling goods in foreign market below production costs or below “fair” market value

• Unloading excess production or predatory behavior