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Chapter 9: Problem 1

What is a tariff? What is a quota? Give an example, other than a quota, of a nontariff barrier to trade.

Short Answer

Expert verified
A tariff is a tax or duty on a specific class of imports or exports. A quota limits the number or value of goods that can be traded. Another type of non-tariff barrier could be product standards that favor domestic goods over imports.

Step by step solution

01

Definition of tariff

A tariff is a tax or duty that a government places on a specific category of imports or exports, with the primary aim of restricting trade. The impacts can include protecting domestic industries from foreign competition, generating revenue for the government, and diplomatic negotiations.
02

Definition of quota

A quota is a government-imposed trade restriction that limits the number or monetary value of goods that can be imported or exported during a particular period. Quotas are used to protect domestic industries and maintain geopolitical relationships.
03

Example of a Non-tariff Barrier

Non-tariff barriers to trade are government laws, regulations, policies, or practices that either protect domestic products from foreign competition or artificially stimulate exports of particular domestic products. An example beyond a quota could be product standards. Governments might set certain standards that imported goods must meet, thus making it harder for foreign goods to compete with domestic goods.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Tariff
A tariff is essentially a financial charge that a country's government places on imported or exported goods. This can have several purposes:
  • Protect domestic industries: By making foreign goods more expensive, tariffs help protect local businesses from international competition, allowing them to grow.
  • Generate government revenue: Tariffs can also serve as a source of income for the country, adding to public funds.
  • Aid in diplomatic negotiation: Sometimes, tariffs are used as a tool in international negotiations, either to encourage fair trade practices or resolve disputes.
For example, if a country imposes a tariff on imported steel, the domestic steel industry becomes more competitive compared to their international counterparts, whose products now cost more.
Quota
A quota sets a concrete limit on the amount or value of a certain product that can be imported or exported during a fixed time period. Quotas have a distinct role in trade policies:
  • Supporting local industries: Similar to tariffs, quotas are aimed at protecting homegrown industries from being overshadowed by foreign suppliers.
  • Balancing international relations: By controlling trade quantities, quotas help maintain harmonious trade relations and balance economic power.
Suppose there is a quota on the import of sugar. Once the quota is reached, no more sugar can be legally imported, therefore ensuring a minimum market share for domestic sugar producers.
Non-Tariff Barriers
Non-tariff barriers are diverse techniques that governments use to control international trade beyond simple taxes or limits. They can take various forms:
  • Product standards: Some countries uphold specific safety, quality, or environmental standards for products. These standards must be met before products are allowed entry, often making it challenging for foreign companies.
  • Licensing: Some goods might require a special license for import or export, restricting the ability to trade freely without the necessary permits.
  • Subsidies: Governments might provide subsidies to local businesses, increasing their competitiveness in both domestic and global markets, hence making foreign goods less attractive.
For instance, a country could require that all imported electronic devices meet specific energy efficiency standards, limiting the types of products that can enter and compete.

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Most popular questions from this chapter

A political commentator makes the following statement: The idea that international trade should be based on the comparative advantage of each country is fine for rich countries like the United States and Japan. Rich countries have educated workers and large quantities of machinery and equipment. These advantages allow them to produce every product more efficiently than poor countries can. Poor countries like Kenya and Uruguay have nothing to gain from international trade based on comparative advantage. Do you agree with this argument? Briefly explain.

Political commentator B. Bruce-Briggs once wrote the following in the Wall Street Journal: "This is not to say that the case for international free trade is invalid; it is just irrelevant. It is an 'if only everybody' ... argument .... In the real world almost everybody sees benefits in economic nationalism." What do you think he means by "economic nationalism"? Do you agree that a country benefits from free trade only if every other country also practices free trade? Briefly explain.

An article in the New Yorker stated, "The main burden of trade-related job losses and wage declines has fallen on middle- and lower-income Americans. But ... the very people who suffer most from free trade are often, paradoxically, among its biggest beneficiaries." Explain how it is possible that middle-and lower-income Americans are both the biggest losers and at the same time the biggest winners from free trade.

An article in the New York Times quoted an economist as arguing that "global free trade and the European single market \(\ldots\) encourage countries to specialize in sectors where they enjoy comparative advantage. Germany's [comparative advantage] is in cars and machine tools." For the author's observation to be correct, must Germany be able to produce more cars and machine tools per hour worked than do France, Italy, Spain, and Germany's other trading partners? Briefly explain.

Steven Landsburg, an economist at the University of Rochester, wrote the following in an article in the Wall Street Journal: Free trade is not only about the right of American consumers to buy at the cheapest possible price; it's also about the right of foreign producers to earn a living. Steelworkers in West Virginia struggle hard to make ends meet. So do steelworkers in South Korea. To protect one at the expense of the other, solely because of where they happened to be born, is a moral outrage. How does the U.S. government protect steelworkers in West Virginia at the expense of steelworkers in South Korea? Is Landsburg making a positive statement or a normative statement? A few days later, Tom Redburn published an article disagreeing with Landsburg. Redburn argued that caring about the welfare of people in the United States more than about the welfare of people in other countries isn't "some evil character flaw." According to Redburn, "A society that ignores the consequences of economic disruption on those among its citizens who come out at the short end of the stick is not only heartless, it also undermines its own cohesion and adaptability." Which of the two arguments do you find most convincing?
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