Question

The Arsenal of Trade Weaponry

Trade policy instruments are designed with one thing in mind: protectionism. Most are unambiguously pro-domestic producer and anti-consumer. Domestic producers mainly gain due to greater protection from foreign competition, whereas consumers lose by facing higher prices and lower product variety.

Governments intervene in international trade for political and economic reasons. Choices are abundant when selecting from the "arsenal" of trade weapons, including tariffs, subsidies, import quotas, voluntary export restraints (VERs), local content requirements (LCRs), administrative policies, and antidumping duties. Nations usually adopt trade regulations to achieve stated national objectives, but these regulations may have undesirable effects on many sectors of the economy, including higher prices for consumers, overproduction of agricultural products, and the insulation of nonefficient producers.

Answer 1

Type of restrictions	Example	Reason
Specific Tariffs	The U.S. levies a $1 tariff on imported watches	These are taxes imposed on the import to increase the price of imported products
Subsidies	EU payments to European farmers	This is the payment given to the domestic producer by the government
Import Quotas	The United States restricts the number of imported video games	A restriction on the total number of quantities that can be imported
VERs	The United States asks Peru to restrict sugar exports to the United States	These are the quotas imposed by the exporting countries
Local content requirements	Specific % of television imports must be produced domestically	This mandates a certain percentage of production to be done locally
administrative policies	Drug unapproved by FDA is banned in the United States	The government agency regulate the imports of products to be used in the country
antidumping policies	EU imposes a special tariff on very low-priced steel imports	This is done to prevent dumping of the products in the country
ad valorem tariff	The United States imposes 2.5% tariff on imported watches	Tariffs which are applied in the form of a percentage