Economics Unit 7 Lesson 2: Trade Barriers and Agreement
Terms in this set (24)
Or trade restriction, a means of preventing a foreign product or service from freely entering a nation's territory
What are the three forms of trade barriers?
import quotas, voluntary export restraints, and tariffs
A limit on the amount of a good that can be imported
Voluntary export restraint (VER)
A self-imposed limitation on the number of products shipped to a particular country. A country voluntarily decreases its exports in an attempt to reduce the chances that the importing country will set up trade barriers
A tax on certain items purchased abroad
Less formal barriers to trade
Sometimes a government will require foreign companies to obtain a license to sell goods in that country. High licensing fees or slow licensing processes act as an informal trade barrier. Health and safety requirements are also used as subtle trade barriers.
Effects of trade barriers
-Increased prices for foreign goods
-Trade wars: lead to substantial decrease in trade for both countries
What was the largest and most dangerous trade war in U.S. history?
Launched y the Smoot-Hawley tariff in 1930. This tariff raised the average tariff on all products to 50%. Countries responded by raising tariffs against American made goods. The trade war that resulted decreased international trade and deepened the worldwide depression of the 1930's.
What was the Beef War?
European countries launched the Beef War by banning the import of American beef from cows raised with hormones. The U.S. responded by raising tariffs on European goods
The Steel Tariff dispute of 2002
Began when the U.S. introduced temporary tariffs on imported steel to help American steel producers recover from bankruptcy. Angry European nations sued and threatened to retaliate
The use of trade barriers to protect industries from foreign competition. These include protecting worker's jobs, protecting infant industries, and safeguarding national security.
Protecting jobs by protectionism
It shelters workers in industries that would be hurt by foreign competition
Protecting infant industries by protectionism
Tariffs and other protectionist policies are often defended on the grounds that they protect new industries in the early stages of their development. A tariff shields a young industry from the competition of its mature rivals.
What two main difficulties arise from protecting infant industries?
A protected infant industry lacks the incentive to become more efficient and competitive. Once an industry is given tariff protection, it is difficult to take the protection away.
Safeguarding national security by protectionism
Certain industries may require protection from competition because their products are essential to defending the country
International free trade agreement
Agreement that results from cooperation between at least two countries to reduce trade barriers and tariffs and to trade with each other.
The Reciprocal Trade Agreement Act
It gave the U.S. president the power to reduce tariffs by as much as 50%. The Act also allowed Congress to grant most-favored nation (MFN) status to U.S. trading partners
The World Trade Organization (WTO)
The GATT, the General Agreement on Tariffs and Trade, was established to reduce tariffs and expand world trade. Founded in 1995 to ensure compliance with GATT, to negotiate trade agreements, and to resolve trade disputes.
European Union (EU)
A regional trade organization made up of European nations. Member nations agreed to eliminate tariffs on one another's exports. They thereby created a single market, called the European Economic Community (EEC)
The North American Free Trade Agreement will eliminate all tariffs and other trade barriers between Canada, Mexico, and the U.S. The resulting free-trade zone is the largest in the world
The Asia-Pacific Economic Cooperation includes countries that lie along the Pacific rim, including the U.S., Mexico, and Canada. These nations have signed a non-binding agreement to reduce trade barriers among their nations
The Southern Common Market is similar to the EU in its goals. Its members are Brazil, Argentina, Paraguay, and Uruguay.
The Caribbean Community and Common Market includes countries from South America and the Caribbean.
The Role of Multinationals
MNCs also contribute to international trade. The decision to build production facilities in a foreign country benefits both the MNC and the host nation. The MNC benefits from cheap labor and reduced tariffs and the host nation gets more jobs.