ECN-450 Exam 2

protective tariff

reduces the amount of imports entering a country

revenue tariff

imposed to generate tax revenues and may be placed on either imports or exports

individual income tax 1913

U.S.’ largest source of revenue was tariffs prior to income tax enacted in 1913

Generalized System of Preferences (GSP)

free-trade agreements in which U.S. gives imports to developing countries

ad valorem tariff (of value)

a fixed percentage of the value of the imported product

specific tariff

a fixed amount of money per physical unit of the imported product

compound tariff

a combination of specific and ad valorem.
an importer may be required to pay a duty of a fixed amount plus a percent of the value of the imported good

specific tariff intentions

encourages domestic producers to produce less expensive goods

free-on-board (FOB) valuation

the tariff is applied to the product’s value as it leaves the exporting country

cost-insurance-freight (CIF) valuation

ad valorem tariff is levied as a percentage of the imported good’s value as it arrives to its destination

offshore-assembly provision (OAP)

provides favorable treatment for products assembled abroad from U.S.-made components

Ford 2009

transformed wagons into cargo vans during importing processes to avoid thousands of dollars in tariffs

bonded warehouse

a storage facility operated by US Customs Services
imported goods are stored and duties must be paid on the value of the goods upon removal

revenue effect

represents the government’s collection of tariff revenue
# of imports * tariff

redistributive effect

the transfer of consumer surplus to domestic producers

protective effect

the tariff’s loss to the domestic economy

consumption effect

loss of welfare that occurs because if increased prices and lower consumption

optimal tariff

rate at which the positive difference between the gain of improving terms of trade and the loss of declining import volume maximze

Tariffs on Chinese-manufactured goods

Trump and Biden imposed retaliatory tariffs on Chinese manufactured goods, placing the cost of the tariff on the bank account of the American importer when Chinese products arrive at the American port

protectionism

regressive tariff

scientific tariff

a tariff that eliminates foreign cost advantages over domestic firms

absolute quota

physical restriction on the quantity of goods imported

global quota

permits a specified quantity of goods imported each period

selective quota

import quota allocated to specific countries
may lead to domestic monopoly of production

import license

gov allocates limited number of licenses that permit importers to import product up to a limit

quota vs tariff

quota more restrictive since it can limit the number of goods that can be imported

tariff-rate quota (two-tier tariff)

allows a specified number of goods to be imported at one tariff rate
and any imports above the specified number to be imported at a higher tariff rate

export quotas

a limit on the amount of a good that can be exported

voluntary export agreements

when an exporting country agrees to decrease its exports without the importing country enacting other trade restrictions

Ronald Reagan 1986

reached voluntary export agreements Taiwan, Hong Kong, South Korea

American Automobile Labeling Act (AALA)

1994 requires content labels on cars and trucks to tell buyers where the parts were made

dumping

international price discrimination where foreign buyers are charged lower prices than domestic buyers for identical products

sporadic dumping

when a firm disposes of excess inventories on foreign markets by selling abroad at lower prices

predatory dumping

when a producer temporarily reduces prices abroad to drive foreign competitors out of business

example of predatory dumping

1970s Zenith Radio Corporation
Japanese televisions were being sold in the U.S. at rock-bottom prices so Zenith accused Japan of predatory dumping

persistent dumping

goes on indefinitely to maximize economic profits

antidumping duty

levied when the U.S. Department of Commerce determines foreign merchandise being sold at less than fair value

margin of dumping

the difference between the foreign market value and the U.S. price

Buy American Act 1933

stimulated domestic employment during the Great Depression

forced the purchase of materials from American companies if the price was not unreasonably higher

Build America Buy America Act 2021

Required 55% of end products and construction materials to be US made

social regulation

aims to correct a variety of side effects in an economy related to health, safety, and environment

Corporate Average Fuel Economy (CAFE) standards 1975

US fuel economy standards on automobile manufacturers

income tax created in 1913

became the dominant source of government revenue reducing tariff reliance

Underwood Tariff 1913

against rising protectionism

reduced duties to 27%

protectionism

government restricts international trade to shield domestic producers

Fordney-McCumber tariff 1922

allowed the president to increase tariff levels if foreign production costs were below US levels

average tariff rate 38%

Smoot-Hawley Act 1930

raised tariffs to 53% on protected imports

high point of US protectionism

diverted national demand toward domestically produced goods

decreased overall volume of world trade

aftermath of Smoot-Hawley 1930-1933

other nations retaliated with higher tariffs on US goods

US fell into Great Depression under Franklin Roosevelt

1932 Democrats dismantled Smoot-Hawley and relied on reciprocal trad