Government policy tools in international trade, political economy, and ethics (ECON 300)

Infant Industry Argument

Developing countries have comparative advantage in manufacturing; new manufacturing cannot initially compete with established industries in developed countries.

Strategic Trade Policy

Industries with economies of scale can only support a few large firms globally, leading to potential dominance by certain countries.

Protecting jobs and industries

Domestic government action to shield local businesses from foreign competition to prevent job loss.

Protecting National Security

Safeguarding industries like aerospace for defense purposes.

Retaliating

Use of high tariffs to pressure another country into compliance.

Protecting consumers

Government's responsibility to safeguard consumers from unsafe products.

Furthering foreign policy objectives

Granting beneficial trade terms to maintain good relations with specific countries.

Protecting Human Rights

Utilizing trade policies to influence other countries' human rights practices.

Tariffs

Taxes imposed on foreign goods, which can create domestic producer surplus and government revenue.

Winners/Losers of Tariffs

Domestic producers and government benefit from import tariffs. Foreign producers and domestic consumers face negative impacts from tariffs.

Quotas

Limits set on the amount of goods that can be imported, affecting prices and competition.

Winners/Losers of Quotas

Domestic producers and potentially domestic government gain from quotas. Domestic consumers suffer from higher prices and limited choices.

Subsidies

Financial support from the government to domestic producers, which can distort market prices.

Winners/losers of Subsidies

Domestic producers benefit, while domestic consumers may suffer from higher prices.

Open economy

A market system without government intervention allowing for free trade.

Welfare analysis

A method to assess consumer and producer surplus, and inefficiencies in the market.

Positive economics

Describes how things are in the economy, such as cause and effect relationships.

Normative economics

Prescribes how things should be in the economy, often based on value judgments.

Deadweight Loss (DWL)

Loss of economic efficiency when equilibrium is not achieved or is not achievable.

Political System

Framework defining how power and authority are structured within a society.

Individualism

Philosophy prioritizing individual happiness and personal goals.

Collectivism

Philosophy emphasizing the importance of the group or state over the individual.

Democracy

Political system emphasizing people's participation and ownership of production.

Totalitarianism

Political system where power is concentrated in a central authority.

Socialism

Economic system characterized by state ownership of production and resources.

Free Market

Economic system with minimal government intervention, allowing for free trade and competition.

Mixed Economy

An economic system combining elements of both free markets and government intervention.

Command Economy

Economic system where the government controls production and distribution of goods.

Common Law

Legal system based on case law and judicial precedent, flexible and subjective.

Civil Law

Legal system based on codified statutes and laws, often more rigid and objective.

Ethics

Accepted principles of right and wrong governing conduct in business and society.

Ethical dilemma

Situation where no choice seems clearly ethically acceptable.

Ethical strategy

Course of action that adheres to accepted ethical standards.

Utilitarianism

Ethical theory evaluating actions based on their outcomes, focusing on the greatest good.

Kantian Ethics

Ethical perspective based on intention and duty rather than consequences.

Consumer safety

Measures taken to protect consumers from harmful products in the market.

Ill goods

Products that can harm consumers, such as illegal drugs or unsafe toys.

Trade policy tools

Various means employed by governments to regulate international trade.

Administrative restrictions

Arbitrary regulations imposed to create barriers to foreign competitors.

Domestic content requirements

Laws mandating that a certain percentage of products must be sourced domestically.

Value creation

Process of generating economic value through the production and exchange of goods.

Value capturing

Process where consumers gain benefits through purchasing goods at discounted prices.

Redistribution of wealth

Transfer of income and resources from certain individuals to others to reduce inequality.

Trade wars

Conflict between countries characterized by increasing tariffs and trade restrictions.

Market efficiency

Condition where market prices fully reflect all available information, leading to optimal resource allocation.

Consumer welfare

The overall satisfaction and benefit derived by consumers from the market.

Producer surplus

The difference between what producers are willing to accept for a good versus what they receive.

Deadweight loss sources

Inefficiencies resulting from market distortions such as taxes, subsidies, or quotas.

Human Rights pressure

Use of economic leverage to promote better human rights practices in other nations.

Market intervention

Actions taken by governments to influence market outcomes.

Corporate responsibility

Obligation of companies to act ethically and contribute positively to society.

Philosophical solutions

Theoretical approaches to resolving ethical dilemmas in business practices.

Friedman doctrine

Economic principle suggesting businesses should prioritize profit maximization.

Cultural relativism

Adaptability to local customs and values in international business practices.

Righteous moralism

Applying one's own ethical standards to others in different cultural contexts.

Naive immoralism

Emulating the behavior of others in the absence of ethical standards.

Moral obligation

Perceived ethical duties businesses have toward society, particularly in quality and jobs.

Environmental regulations

Laws governing the protection of the environment from harmful business practices.

Corruption

Illegal or unethical conduct by individuals in positions of power, often for personal gain.

Regulatory compliance

Adhering to laws and regulations governing business operations.

Ethical behavior

Conduct that is consistent with accepted moral principles and standards.

Business ethics

Set of principles guiding the behavior of businesses and their employees.

Stakeholder theory

Management concept focusing on the interests of all parties affected by business actions.

Corporate governance

System of rules and practices directing and controlling companies.

Consumer protection laws

Legislation designed to safeguard buyers of goods and services against unfair practices.

Trade agreements

Treaty between two or more nations agreeing on trade terms to facilitate exchange.

Price elasticity of demand

Measure of how much the quantity demanded of a good responds to a change in price.

Inelastic demand

Demand that is relatively unresponsive to changes in price.

Elastic demand

Demand that significantly changes with price fluctuations.

Equilibrium price

Price at which the quantity demanded by consumers equals the quantity supplied by producers.

Market competition

Rivalry among sellers to attract customers and gain market share.

Market equilibrium

Condition in which supply equals demand, resulting in stable prices.

What are the political reasons for government policy tools in international trade?

Protecting jobs and industries, Protecting National Security, Furthering foreign policy objectives, Protecting Human Rights, retaliating, and protecting consumers

What are the economic reasons for government policy tools in international trade?

The Infant Industry Argument and strategic trade policy

Economic effect of tariff

This leads to domestic producer surplus, domestic government revenue from the tax, DWL from lost CS (consumers buying less and out of the market, DWL 1), and DWL from inefficient producers brought back into the market due to tariff (DWL 2).

Economic effect of quota

From domestic consumer POV, outcome is same as tariff: increase in price, increase in quantity demanded, increase in dead weight loss.

This leads to domestic producer surplus, DWL from lost CS (consumers buying less and out of the market, DWL 1), and DWL from inefficient producers brought back into the market due to tariff (DWL 2), and CS lost to foreign producers. Foreign producers sell less and charge higher price. Domestic government can capture the CS lost to foreign producers by charging them in order for them to sell in the domestic market.

Economic effect of subsidy

Supply curve is related to cost of production (marginal cost to producers) so when they get money from domestic government, they increase their supply curve.

Same as price open and quantity demanded increases. No DWL. CS goes to subsidy.