Government policies that reduce or block imports in order to shield domestic producers from foreign competition are known by a single word ending in -ism: protectionism.
Missing Word
protectionism
Protectionism covers tariffs, quotas and nontariff barriers alike. Whatever the tool, it raises the domestic price of the protected good, helping domestic producers at the expense of consumers.
Category: Tools of Protection
Question 2
A limit on the number of units of a good that may be brought into a country each year is a quota.
Missing Word
quota
A quota restricts the quantity of imports directly. By cutting supply in the domestic market, it raises the price of the good just as a tariff does.
Category: Tools of Protection
Question 3
Selling goods in another country at a price below their cost of production is called dumping.
Missing Word
dumping
Dumping can happen innocently, as when falling demand pushes prices below cost, or as part of a plan to drive out rivals. Laws against it impose import taxes to raise the price to the cost of production.
Category: Arguments for Restrictions
Question 4
Founded in 1947, the agreement known by the acronym GATT was a forum where countries negotiated lower trade barriers until a new global trade organization took its place in 1995.
Missing Word
GATT
GATT stands for the General Agreement on Tariffs and Trade. Its negotiating rounds cut tariffs sharply after World War II, and the World Trade Organization succeeded it in 1995.
Category: Trade Agreements
Question 5
When a government bans all trade with a particular country, usually for political reasons, the ban is called an embargo.
Missing Word
embargo
An embargo is the most extreme trade barrier: instead of taxing or limiting imports, it stops trade with the targeted country altogether. Like other barriers, it cuts off the gains from trade for buyers and sellers on both sides.
Category: Tools of Protection
Question 6
The free trade agreement among the United States, Canada and Mexico that took effect in 1994, known by the acronym NAFTA, was later replaced by the USMCA.
Missing Word
NAFTA
NAFTA stands for the North American Free Trade Agreement. It removed most tariffs among the three countries and was replaced in 2020 by the United States-Mexico-Canada Agreement.
Category: Trade Agreements
Question 7
When one country raises its import taxes and its trading partner responds by raising import taxes of its own, the response is called retaliation.
Missing Word
retaliation
Retaliation is a counter-measure taken in response to another country's trade barrier. Rounds of retaliation can shrink trade and harm consumers and exporters in both countries.
Category: Tools of Protection
Question 8
Industries that want protection from imports often seek it by lobbying, directly pressing lawmakers to adopt favorable rules.
Missing Word
lobbying
Lobbying is the effort by an interest group to influence lawmakers. Because the benefits of protection are concentrated on a few producers, those producers have a strong incentive to lobby for it.
Category: Trade Agreements
Question 9
When the world price of a good is above a country's no-trade price, domestic firms produce more than domestic buyers want, and the extra output they sell to foreign buyers is counted as the country's exports.
Missing Word
exports
Exports are goods produced at home and sold abroad. At a world price above the no-trade price, domestic quantity supplied exceeds domestic quantity demanded, and the gap is shipped to other countries, which raises the price domestic producers receive.
Category: Winners and Losers
Question 10
Trade tends to raise a country's average wages because specializing by comparative advantage raises the productivity of its workers.
Missing Word
productivity
Productivity is output per unit of labor. When workers produce more, they are worth more to employers, so the demand for labor and average wages rise.
Category: Jobs and Wages
Question 11
The Uruguay Round, the series of trade negotiations held from 1986 to 1994, led to the creation of the World Trade Organization.
Missing Word
Uruguay
The Uruguay Round is named for the country where the talks were launched in 1986. Its agreements cut tariffs further and set up the World Trade Organization, which began operating in 1995.
Category: Trade Agreements
Question 12
Governments of low-income countries often treat environmental protection as a luxury, something to pay for after basic needs such as food and health care are met.
Missing Word
luxury
In this sense a luxury is something a society chooses to afford only after its basic needs are covered. This helps explain why environmental rules are often weaker in low-income countries than in high-income ones.
Category: Arguments for Restrictions
Question 13
A foreign firm that sells below cost to drive out domestic rivals would profit only if it could later raise prices once it held a monopoly.
Missing Word
monopoly
A monopoly is a market with a single seller. Predatory pricing pays off only if the firm can later charge monopoly prices, and documented cases of this in international trade are hard to find.
Category: Arguments for Restrictions
Question 14
Trade changes the distribution of income within a country, because some firms and industries grow while others shrink.
Missing Word
distribution
The distribution of income describes how total income is divided among people and groups. Trade raises total income but shifts it toward expanding industries and away from those facing import competition.
Category: Trade Policy Tradeoffs
Question 15
A tax that a government collects on imported goods, also called an import duty, is a tariff.
Missing Word
tariff
A tariff raises the price of imported goods in the domestic market, which shields domestic producers and brings in revenue for the government. Cutting tariffs was the main work of the GATT negotiating rounds after World War II.
Category: Tools of Protection