International Economics Study Set 8

Business

Quiz 11 :

Controversies in Trade Policy

Quiz 11 :

Controversies in Trade Policy

Question Type
search
arrow
What are the disadvantages of engaging in strategic trade policy even in cases in which it can be shown to yield an increase in a country's welfare?
Free
Essay
Answer:

Answer:

The policy of strategic trade policy refers to the policy of deterring foreign investment and production by imposing tariff or subsidy to protect the domestic industry. It is a method of altering the rules of the game to shift the excess returns from imperfectly competitive foreign firms to domestic firms. Such capture of profits from foreign competitors would mean the subsidy raises national income at other countries' expense. So, the disadvantage of strategic trade policy is that such policy leads to "rent seeking" and beggar-thy-neighbor policies which increase one country's welfare at the cost of other country's welfare. It provokes counter retaliation by the suffering country and may run the risk of trade war which makes everyone worse off.

Tags
arrow
Suppose the U.S. government were able to determine which industries will grow most rapidly over the next 20 years. Why wouldn't this automatically mean that the nation should have a policy of supporting the growth of these industries?
Free
Essay
Answer:

Answer:

Identification of certain industries which have future prospects to grow most means more investment will pour from the private sectors to those industries. The growth tag attached to some industries by the government itself establishes the fact that these industries will reap profits. This will automatically draw the attention of the profit oriented private sector and does not need policy of supporting the growth of these industries.

Tags
arrow
If the United States had its way, it would demand that Japan spend more money on basic research in science and less on applied research into industrial applications. Explain why in terms of the analysis of appropriability.
Free
Essay
Answer:

Answer:

Japan supported research effort that helped build domestic technological capacity. Any investment by Japan on applied research into industrial application will help that country's industries. It will try to concentrate on the specific industrial problems and accordingly innovates to reap the strong technological externalities of that research and earn excess returns. But if Japan spends more on basic research, its benefits can be appropriable by a variety of firms and industries of not only Japan but also by other countries. The benefits from basic research will generate knowledge spillovers that may counter market failures. It is on this basis that United States demanded more investment by Japan on basic research.

Tags
arrow
What are the key assumptions that allow strategic trade policy to work in the Brander-Spencer example of Airbus and Boeing?
Essay
Answer:
Tags
arrow
Suppose the European Commission asked you to develop a brief on behalf of subsidizing European development of software for smartphones-bearing in mind that this industry is currently dominated by U.S. firms, notably Apple and Google (whose Android system is used on many phones and tablets). What arguments would you use? What are the weaknesses in those arguments?
Essay
Answer:
Tags
arrow
What is the main critique against the WTO with respect to environmental protection? How does the WTO justify its position on trade disputes that involve environmental issues?
Essay
Answer:
Tags
arrow
France, in addition to its occasional stabs at strategic trade policy, pursues an active nationalist cultural policy that promotes French art, music, fashion, cuisine, and so on. This may be primarily a matter of attempting to preserve a national identity in an increasingly homogeneous world, but some French officials also defend this policy on economic grounds. In what sense could some features of such a policy be defended as a kind of strategic trade policy?
Essay
Answer:
Tags
arrow
"The fundamental problem with any attempt to limit climate change is that the countries whose growth poses the greatest threat to the planet are also the countries that can least afford to pay the price of environmental activism." Explain in terms of the environmental Kuznets curve.
Essay
Answer:
Tags
arrow
Many countries have value-added taxes-taxes that are paid by producers, but are intended to fall on consumers. (They're basically just an indirect way of imposing sales taxes.) Such value-added taxes are always accompanied by an equal tax on imports; such import taxes are considered legal because like the value-added tax, they're really an indirect way of taxing all consumer purchases at the same rate. Compare this situation to the argument over carbon tariffs. Why might defenders argue that such tariffs are legal? What objections can you think of ?
Essay
Answer:
Tags