PS 4

Political reasons for trade policy

To protect jobs and industries from foreign competition, ensure national security, retaliate against other countries, support strategic groups, and respond to unfair trade practices.

Economic reasons for trade policy

To protect infant industries, support strategic industries, correct market failures, and improve terms of trade for larger countries.

Tariff

A tax imposed on imported goods.

Quota

A direct limit on the quantity of imports allowed.

Voluntary export restraint

An agreement by an exporting country to limit its exports.

Subsidy

Financial assistance given by the government to domestic producers.

Local content requirement

A regulation mandating that a certain percentage of a product must be produced domestically.

Administrative policies

Rules and regulations that create barriers to imports.

Antidumping duty

A special tariff imposed on imports that are priced unfairly low.

Benefits of open trade

Lower prices, increased variety, and greater consumer surplus.

Effect of open trade on domestic producers

Open trade lowers market prices, resulting in decreased sales and potential exit of high-cost firms.

Impact of tariffs on market prices

Tariffs generally raise overall market prices.

Redistribution of consumer surplus due to tariffs

Consumers lose surplus as prices increase, with some loss going to producers, some to government revenue, and some represented as deadweight loss.

Tariff inefficiencies

Tariffs create deadweight losses through production inefficiency and consumption inefficiency.

Burden of tariffs on Canadian imports

Consumers pay higher prices, domestic producers benefit, foreign producers may lower prices, and government gains revenue.

Economic preference of policies

Free trade is generally preferred; if intervention is necessary, tariffs are favored over quotas, while subsidies may be less harmful to consumers.