International
Trade
Vocabulary
Answers
Voluntary export restraint
F. Limits on exports usually imposed by the
exporting country at the importing country’s
request. More costly to the importing country
than a tariff that limits imports by the same
amount.
Example: In the 1970’s Japanese automakers were
asked to limit the number of automobiles exported to
the U.S. This action is taken to protect an industry
that sells a similar product at a higher price or
possibly an inferior product.
Ad valorem tariff
D. A charge levied as a fraction of the
value of the imported good (e.g., 25%
on imported trucks).
Example: Durable goods frequently have import
tariffs based on the value of the product (cars,
trucks, machinery and equipment, etc.). The higher
the product value, the higher the tariff. The tariff is
imposed to raise domestic prices of the protected
product.
Tariff
B. A tax levied when a good is imported.
Example: Many countries use import tariffs to increase
the domestic price of the protected commodity. The
U.S. uses tariffs on sugar and steel and Chinese
agricultural products among others.
Specific tariff
C. A fixed charge for each unit of goods
imported (e.g., $3 per barrel of oil).
Example: A fixed charge per barrel of oil, ton of steel,
hundred weight of sugar or bale of cotton. The purpose
is to protect a commodity by making the domestic price
higher than the world price.
Comparative advantage
A. Countries that can produce a product or
good more efficiently and cost-effectively
have an advantage for that good compared to
other countries.
Example: In Brazil, patent rights are often not
enforced, so farmers there do not pay a royalty for
Roundup herbicide. The cost for that product in
Brazil is approximately half the cost that U.S. farmers
pay for using Roundup herbicide, resulting in lower
costs of producing soybeans.
Import Quota
E. Limits the quantity of a good that can be
imported, which raises the domestic price of
the imported good.
Example: Many countries restrict the amount of
foreign products that enter their country in order to
maintain higher domestic product prices. For
example, Japan restricts meat imports and Ukraine
restricts sugar imports.
National procurement
I. Purchases by the government, or
strongly regulated firms, directed toward
domestically produced goods even when
these goods are more expensive than
imports.
Example: The dairy and cheese program in the United
States is a national procurement program. The
European Union procures grains. These programs are
intended to support prices through governmental
purchases.
Export subsidy
G. Payment to a firm or individual that
ships a good abroad. This subsidy can
either be fixed or ad valorem.
Example: The United States government reimburses
companies that ship food to underdeveloped countries.
The reimbursement allows the countries to pay less for
the food.
Currency appreciation
M. When a higher amount of another
currency is able to exchange for another
unit of domestic currency. An increase of
exchange rates of 0.6 pounds per dollar
to 0.8 pounds per dollar is an increase
in the value of the dollar.
Currency depreciation
L. Happens when a lower amount of
another currency is able to exchange
for one unit of a domestic currency. A
drop of exchange rates of 0.8 pounds
per dollar to 0.6 pounds per dollar is a
drop in the value of the dollar.
Exchange rate
K. The price of one currency in terms of
another.
Example: To purchase a $1 item from the United
States, Brazilian purchasers would have to exchange
3 reals if the exchange rate was 3:1.
Export credit subsidy
H. Similar to an export subsidy except
that it takes the form of a subsidized
loan to the buyer.
Example: The United States sells food to
underdeveloped countries on credit. The credit
allows the countries to purchase food without
having the cash. Often these loans are not paid back
in full.
Red-tape barriers
J. Restricting imports through normal health,
safety, and custom procedures so as to
place substantial obstacles in the way of
trade.
Example: These restrictions are based on real or
perceived concerns such as GMO, mad cow disease,
hoof and mouth disease or salmonella. The affect is
that domestic industries are protected through lower
foreign competition and is often used as a retaliatory
action for other trade restrictions.
World Trade Organization
O. An organization established in 1995 to
promote fair trade among its members. It uses
a system of trading rules to resolve trading
disputes. When a country has been found to be
in violation, most often the offending country
changes it trade policy to come into
conformance.
General Agreement on
Tariffs and Trade
N. An agreement established in 1947
and last ratified in 1994 between 23
countries on a set of rules for trade
between them.
European Union
Q. An organization of 25 countries
that agreed to remove all tariffs with
respect to each other and formed one
export subsidy program known as the
Common Agricultural Policy.
North American Free
Trade Agreement
P. An agreement established in 1993
between Canada, the United States
and Mexico on a set of rules for trade
between them.
Credits
1
Source: 2003. Krugman, Paul R. and
Maurice Obstfeld.
International Economics: Theory and
Policy.
Boston: Addison Wesley.
Various pages.