Question 1

Paul Krugman believed that a country that attempts to use strategic trade policy to establish a domestic firm in a dominant position in a global industry, is most likely to

Accepted Answer

Strategic trade policy can lead to retaliation from other countries, as they may respond with their own trade barriers or policies to protect their industries.

Question 2

Bilateral voluntary export restraints, or VERs, circumvented GATT agreements because

Accepted Answer

VERs circumvented GATT agreements because they were voluntary agreements between two countries, and neither party complained to the GATT, which meant no action was taken against them.

Question 3

The first official government policy for free trade occurred in which country?

Accepted Answer

Great Britain was the first country to adopt a formal policy of free trade in the 19th century, notably with the repeal of the Corn Laws in 1846.

Question 4

What is one major advantage the World Trade Organization had over the GATT agreement?

Accepted Answer

The WTO introduced a more structured and time-bound dispute resolution process compared to the GATT, which lacked strict time limits for resolving disputes.

Question 5

The WTO's Agreement on ________ is an attempt to narrow the gaps in the way intellectual property rights are protected around the world and to bring them under common international rules.

Accepted Answer

The WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) aims to harmonize the protection of intellectual property rights globally and establish common international rules.

Question 6

AllMetal Corp., based in Houston, believes the ideal way for the United States to respond when foreign competitors are already being supported by government subsidies is not to retaliate but to establish rules that help minimize trade-distorting subsidies. Which theorist does AllMetal's management agree with?

Accepted Answer

Paul Krugman is known for his work on international trade theory, including the idea that governments should establish rules to minimize trade distortions rather than retaliate with subsidies or tariffs.

Question 7

The Smoot-Hawley Act had a damaging effect on

Accepted Answer

The Smoot-Hawley Act, which raised U.S. tariffs on imported goods, led to retaliatory tariffs from other countries, reducing international trade and negatively impacting employment abroad.

Question 8

According to Krugman, ________ is the best indicator of the dangers of a strategic trade policy.

Accepted Answer

Krugman argues that strategic trade policies can lead to retaliatory measures from other countries, resulting in trade wars, which are a significant danger of such policies.

Question 9

Another basis for Krugman's argument is that strategic trade policy can be captured by ________, which will distort the policy so it benefits their own needs.

Accepted Answer

Special-interest groups can influence strategic trade policy to serve their own interests, potentially distorting it away from broader economic goals.

Question 10

A major reason why many economists remain critical of the infant industry argument is because it

Accepted Answer

The infant industry argument often leads to inefficiency because it protects new industries from competition, reducing their incentive to innovate and improve productivity.

Question 11

Indonesia might have a potential comparative advantage in manufacturing textiles but is unable to compete with established textile manufacturing in Japan, at least for the near future. Indonesia could claim the

Accepted Answer

The infant industry argument suggests that emerging industries in developing countries may need protection from international competition until they become established and competitive. Indonesia's textile industry might need such protection to compete with established industries like Japan's.

Question 12

One of the main reasons why many economists remain critical of the infant industry argument is its reliance on the assumption that

Accepted Answer

The infant industry argument assumes that new industries need protection to develop, but critics argue that firms can secure investment through capital markets without needing protectionist policies.

Question 13

The economic prosperity enjoyed by ________ during the 1980s and 1990s strained the world trading system and created the demand for increased protectionist measures.

Accepted Answer

Japan experienced significant economic growth during the 1980s and 1990s, leading to trade imbalances and tensions, prompting calls for protectionist measures from other countries.

Question 14

GATS, a sister body of the World Trade Organization, is responsible for extending free trade agreements in what area?

Accepted Answer

GATS stands for the General Agreement on Trade in Services, which is responsible for extending free trade agreements specifically in the area of services.

Question 15

According to ________, a government should use subsidies to support promising firms that are active in newly emerging industries.

Accepted Answer

Strategic trade policy suggests that governments can enhance the competitive position of domestic firms in certain industries by providing subsidies, especially in industries that are emerging and have the potential for significant economic impact.

Question 16

Which multilateral trade agreement was established under U.S. leadership in 1947, with the objective to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like?

Accepted Answer

The General Agreement on Tariffs and Trade (GATT) was established in 1947 under U.S. leadership to promote international trade by reducing or eliminating trade barriers such as tariffs and quotas.

Question 17

One of the reasons why protectionist pressures arose around the world during the 1980s was

Accepted Answer

During the 1980s, countries found ways to circumvent GATT regulations, leading to increased protectionist pressures as nations sought to protect their domestic industries from perceived unfair competition.

Question 18

The Smoot-Hawley Act tried to divert consumer demand away from foreign products by

Accepted Answer

The Smoot-Hawley Act, enacted in 1930, aimed to protect American industries by imposing high tariffs on imported goods, thereby making foreign products more expensive and less attractive to consumers.

Question 19

What is one provision of the Uruguay Round Agreement?

Accepted Answer

The Uruguay Round Agreement included provisions to significantly reduce barriers on trade in textiles over a 10-year period.

Question 20

The ultimate purpose of GATT was to

Accepted Answer

The General Agreement on Tariffs and Trade (GATT) was established to promote international trade by reducing or eliminating trade barriers such as tariffs and quotas, thereby establishing free trade.

Quiz 7: Government Policy and International Trade