International Economics, 7e (Husted/Melvin)



International Economics, 7e (Husted/Melvin)

Chapter 8 Commercial Policy: History and Practice

Multiple-Choice Questions

1)

The Constitution of the United States grants ________ the authority to regulate commerce and to impose tariffs.

A)

Congress

B)

the President

C)

the Supreme Court

D)

the U.S. Trade Representative

Answer:

A

2)

The Constitution of the United States expressly forbids

A)

import tariffs

B)

export tariffs

C)

import quotas

D)

export quotas

Answer:

B

3)

The last major trade bill designed to adjust the general level of U.S. tariffs was passed in

A)

1828

B)

1916

C)

1930

D)

1988

Answer:

C

4)

In the United States, in the early 1800s,

A)

Southern farmers favored high tariffs while Northern manufacturers opposed them.

B)

all sectors opposed high tariffs.

C)

all sectors favored high tariffs.

D)

Southern farmers opposed high tariffs while Northern manufacturers favored them.

Answer:

D

5)

Which statement best describes U.S. tariff history between 1800 and 1940?

A)

Tariffs were relatively high throughout, especially during wars, with peaks in 1828 and 1930.

B)

Tariffs were relatively low throughout, especially during wartime.

C)

Tariffs were relatively high throughout, especially during wars, with lows in 1828 and 1930.

D)

None of the above.

Answer:

A

6)

The ________ is an international organization that sets rules of conduct for international commerce.

A)

International Trade Commission (ITC)

B)

World Trade Organization (WTO)

C)

International Trade Agreement (ITA)

D)

World Bank

Answer:

B

7)

The ________ serves as a forum for international negotiations, such as the Kennedy Round, aimed at lowering barriers to trade.

A)

International Trade Commission (ITC)

B)

World Trade Organization (WTO)

C)

International Trade Agreement (ITA)

D)

World Bank

Answer:

B

8)

________ is defined in U.S. law as selling a product in a foreign country at a price that is less than fair value.

A)

Subsidizing

B)

Countervailing

C)

Exporting

D)

Dumping

Answer:

D

9)

________ is defined as first pricing below fair value to drive domestic firms from the market and then pricing as monopolists.

A)

Predatory subsidization

B)

Monopoly subsidization

C)

Predatory dumping

D)

Monopoly dumping

Answer:

C

10)

Under U.S. law, foreign ________ is (are) illegal in U.S. markets.

A)

dumping and export subsidies

B)

dumping only

C)

export subsidies only

D)

None of the above are illegal

Answer:

A

11)

It is ________ profit maximizing for firms to dump in foreign markets.

A)

never

B)

sometimes

C)

always

Answer:

B

12)

Resolution of dumping cases in the U.S. involve investigations by

A)

the Justice Department and the International Trade Commission.

B)

the Justice and Commerce Departments.

C)

the Justice Department only.

D)

the Commerce Department and the International Trade Commission.

Answer:

D

13)

The effect of antidumping laws is to

A)

put a floor on foreign prices.

B)

lower consumer surplus in the importing country.

C)

encourage domestic firms to allege dumping even when it might not be true.

D)

All of the above.

Answer:

D

14)

Countervailing duty cases involve allegations of

A)

foreign monopoly pricing.

B)

foreign export subsidies.

C)

foreign barriers to U.S. exports.

D)

All of the above.

Answer:

B

15)

Section 301 cases involve allegations of

A)

foreign monopoly pricing.

B)

foreign export subsidies.

C)

foreign barriers to U.S. exports.

D)

All of the above.

Answer:

C

16)

One result of the Uruguay Round is the formation of an organization known as the ________, which is responsible for setting trade rules and settling trade disputes between members.

A)

World Commercial Council (WCC)

B)

World Trade Organization (WTO)

C)

International Trade Organization (ITO)

D)

United World Trade Council (UWTC)

Answer:

B

17)

In U.S. trade law, the ________ allows for the imposition of restrictions on fairly traded imports that cause or threaten harm to domestic industry.

A)

escape clause

B)

countervailing duty

C)

GATT

D)

fair trade law

Answer:

A

18)

Prior to the Uruguay Round agreement, the GATT was criticized because

A)

it had no mechanism for enforcing its rules.

B)

prominent segments of world trade, including trade in agriculture and services, were not covered by GATT rules.

C)

member countries could veto GATT rulings not in their interests.

D)

All of the above.

Answer:

D

19)

In the past twenty years or so, all major U.S. trade legislation has typically included all of the following except

A)

negotiating authority for the President to try to achieve new trade agreements.

B)

new U.S. trade barriers in the form of dumping or countervailing duty laws.

C)

new U.S. trade barriers in the form of uniformly higher tariffs on all goods.

D)

expanded laws calling on the President and USTR to investigate and challenge unfair trading practices of foreign countries.

Answer:

C

20)

________ protection, such as the escape clause, refer to temporary protection given to local industries facing competition from fairly traded foreign products.

A)

Safeguards

B)

Countervailing duty

C)

Fair trade

D)

Competitive trade

Answer:

A

21)

A major stumbling block to the completion of the Uruguay Round was a disagreement between the United States and the EU over rules covering international trade in

A)

services.

B)

steel.

C)

agricultural products.

D)

textiles.

Answer:

C

22)

Which of the following issues were not discussed in the recent Doha trade talks?

A)

Eliminating export subsidies from agricultural products.

B)

Eliminating high tariffs and tariff escalation.

C)

Solving the conflicts of providing cheaper medicines to developing countries while promoting research and development.

D)

Establishing the basic framework for an all-encompassing world free trade agreement.

Answer:

D

True or False Questions

1)

Except for the Smoot Hawley tariff, U.S. tariff levels have always been relatively low.

Answer:

False

Explanation:

None Given

2)

According to the Constitution, the President sets tariff rates.

Answer:

False

Explanation:

None Given

3)

The last trade bill to set overall tariff rates for the United States was the Smoot Hawley Tariff of 1930.

Answer:

True

Explanation:

None Given

4)

In terms of overall welfare, dumping is good for the importing country.

Answer:

True

Explanation:

None Given

5)

Predatory dumping is a common problem in the United States.

Answer:

False

Explanation:

None Given

6)

Dumping can never be a profit maximizing strategy for a firm to follow.

Answer:

False

Explanation:

None Given

7)

Current U.S. trade law allows for U.S. barriers against both fairly and unfairly traded foreign goods.

Answer:

True

Explanation:

None Given

8)

The Uruguay Round was unsuccessful in its attempt to strengthen international protection of intellectual property rights.

Answer:

False

Explanation:

This was one of its great successes.

9)

One of the outcomes of the Uruguay Round is the formation of the World Trade Organization now sets new trade rules and has more power than the old GATT to enforce the rules it sets.

Answer:

True

Explanation:

None Given

10)

Recently, there has been a sharp reduction in the use of antidumping and countervailing duty laws in the United States.

Answer:

False

Explanation:

None Given

11)

According to U.S. law, domestic firms can obtain protection from foreign dumping, even if this protection is harmful to overall U.S. welfare.

Answer:

True

Explanation:

None Given

12)

Predatory dumping by foreign firms is a very common phenomenon in U.S. markets.

Answer:

False

Explanation:

None Given

Essay Questions

1)

Write an essay on the role of Congress in U.S. trade policy since 1930.

Answer:

Congress has authority to set trade policy. However, the Smoot Hawley tariff, which came about because of logrolling in Congress, has lead Congress to cede some of its powers to the President on a temporary basis. Recently, Congress has sought to reimpose itself by encouraging individual industries to seek protection under a variety of measures, and by mandating more automatic policy actions on the part of the President.

2)

Write an essay on the role of the WTO in today's international economy.

Answer:

The WTO serves as a forum for trade liberalization talks, and administers an international body of trade law. Under the latter, it has outlawed certain practices and arbitrates disputes between countries over the interpretation of the code. In its former embodiment, the GATT, it has presided over a number of rounds of talks that have produced substantial reductions in tariff levels, especially in developed countries.

3)

Briefly describe some of the current policies the United States has in place to limit both fairly and unfairly traded goods.

Answer:

The United States has laws against dumping and foreign export subsidies. In both cases, tariffs are imposed to offset the reduction in price below fair market value. The escape clause allows for temporary protection from fairly traded goods that harm or threaten to harm domestic industry.

4)

What is meant by predatory dumping? How likely is it for this to occur in the United States? Discuss.

Answer:

Predatory dumping refers to a situation where a foreign firm charges a price that is so low it is able to capture the local market. Once obtained, the foreign firm then acts like a monopolist. Predatory dumping is extremely unlikely in the United States. When the foreign firm raises its price, nothing prevents new (possibly local) firms from entering the market. Moreover, the U.S. market is so large, it is doubtful that any foreign monopolist could satisfy U.S. demand.

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