who absorbs the costs of subsidies?
consumers
A direct restriction on the quantity of some good that may be imported into a country
import quota
A hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota
tariff rate quota
Quota on trade imposed by the exporting country, typically at the request of the importing country's government
Voluntary export restraint (VER)
Give and example of a VER
Japan agreed to a restriction of 2000 vehiclees per year in the US and when it was released, the US consumers realized their need for hondas and sales boosted drastically
a tax placed on the export of a good
export tariff
a policy that partially or entirely restricts the export of a good
export ban (Ban of exports of US crude oil to ensure a sufficient supply of domestic oil at home)
demands that some specific fraction of a good be produced domestically
local content requirement
bureaucratic rules that are designed to make it difficult for imports to enter a country
administrative trade policies
__________ polices hurt consumers by denying access to possibly superior foreign products
administrative trade
selling goods in a foreign market below their cost of production, or selling goods in a foreign market at below their "fair" market value
dumping
example of dumping
China subsidizes auto parts industry and dumps steel
U.S. firms that believe a foreign firm is dumping can file a complaint with the?
WTO
WTO succeeded
GATT
Reciprocal trade agreements between two or more partners. Agreements are designed to capture gain from trade beyond those agreements currently attainable under WTO treaties
Multilateral and bilateral trade agreements
trade barriers impact _______ _________. They raise the costs of ?
firm strategy; exporting
What are the 5 levels of integration?
1. free trade - no barriers (tariffs, quotas)
2. customs union -
all the above plus common external trade policies
3. common
market - all the above plus free movement of factors of
production
4. economic union - plus common currency, harmonized
tax rates (EU)
5. Political union - plus central political,
economic, social, and formal policy (US)
the amount of FDI undertaken over a given time period
the total accumulated value of foreign-owned assets at a given time
the flows of FDI out of a country
the flows of FDI into a country
1. flow of FDI
2. flow of stock
3. the flows of FDI
out
4. the flows of FDI into a country
is the world's largest foreign investor and the largest recipient of foreign investment
America
once a company owns 10% of a foreign entity, they have?
FDI
Flow and stock of FDI in the world economy have ___________ over the last 25 years FDI flow has grown more rapidly than world _______ and world _________
increased; trade; output
Historically FDI has been directed at ___________ nations and now it is directed at ____________ nations
developed; developing
a way to bypass gov't intervention
FDI
FDI will be favored over exporting when
Transportation costs and trade barriers are high
FDI will be favored over licensing when:
1. The firm wants control over its technological know-how and
operations and business strategy
3. The firm's capabilities are
not amenable to licensing
Benefits to host country
1. resource effects - supplying capital, technology and management
resources that would otherwise not be available
2. employment
effects - creates jobs
3. balance of pmt effects - can achieve
account surplus
4 competition and economic growth
Costs of host country
adverse effects on competition within the host nation, adverse effects on the balance of payments, and the perceived loss of national sovereignty and autonomy
Home Country benefits
1. res. transf effects - gains valuable skills
2. employment
effects - gives jobs at headquarters
3. balance of pmt effects
Home Country Costs
the adverse balance-of-payments and adverse employment effects of outward FDI.
Free flow of goods and services improves all nations
Free flow
of labor, capital allows for goods to be produced more cheaply in one
country, but eventually creating higher labor and efficiencies and
raising the standard of living
regional integration
pros of integration (economic)
1. postive sum game
2. stimulates economic growth
3. trade creation
high-cost local producers with low-cost free-trade regional producers
trade creation
low-cost external trade partners replaced with high-cost, free-trade regional producers`
trade diversion
cons of integration (economic)
trade diversion and loss of monetary policy
political factor pros of integration
Greater cooperation between neighbors reduces the possibility of
war/conflicts
Unified voice
political factor cons of integration
National sovereignty is lost.
what is the most complete example of regional economic integration?
The EU
The EU began as a?
coal and steel community after attempting ot rebuild after WWII
The EU began as a ________, which formed in ___________ through the _________ and changed its name to _______
European Community; 1957; Treaty of Rome; EU
what established a single market for the EU
Single European Act
What Established a common currency - the euro in 1990?
Maastricht treaty
was the last country to join the EU in 2013.
Croatia
What are the 4 components of the EU structure?
1. European Commission
2. European Council
3. European
Parliament
4. Court of Justice
Proposing legislation and implementing, monitoring compliance of EU legislation. How many members?
european comission; 27 commisioners
Passes legislation from the commission into law
Debate issues in
agriculture, taxes,e tc
European council
Debate and propose amendments to Council passed law. Where is it located? How many members?
European parliament; Strasbourg France; 732
Supreme appeals court for EU law. There is one judge from each?
Court of Justice; member state
all the countries who have already switched to the Euro
Euro Zone (19 countries)
What is the first and second largest currencies in the world?
1. the dollar
2. the euro
Over the last two decades, the dollar to Euro exchange rate has experienced a lot of volatility which indicates various political, economic, and legal facotrs. Peak for the euro was in 2008. This means it is _________ ___________ for Americans in the EU because the Euro is stronger
more expensive
Benefits of Euro
- Saved tons of money in Bank Exchange Fees (45
billion)
-Arbitrage Opportunities or Cross Border
Bargains
-Capital Liquidity
-Diversification of Investment Portfolios
Costs of Euro
1. Loss of Monetary Policy (not Denmark, Sweden)•
2. ECB -
European Central Bank (like Fed Reserve)
3. Differing EU member
growth rates, lower average pay, interest rates
Britain exited EU because?
not comfortable with loss of national sovereignty
The vote for Britain leaving was a very __________ vote
close
Greece has been struggling to be productive. _______ keeps bailing them out
IMF
phasing out and replaced with USMCA - regional integration between Mexico, Canada, and USA.
NAFTA
consequences of NAFTA
Jobs were lost since labor is cheaper in Mexico forcing them to migrate to US
Which countries make up CAFTA?
Costa Rica, Nicaragua, El Salvador, Honduras, Guatemala and Dominican Republic AND the USA
Which countries make up Mercosur? They cannot trade with countries _____________
Argentina, Brazil, Paraguay, Uruguay, and Venezuela; outside of Mercsour