13TariffTax placed on imports to increase their price in the domestic market.
142 TypesProtective tariff – tariff high enough to protect less-efficient domestic industries.Revenue tariff – tariff high enough to generate revenue for the government without actually prohibiting imports.
15Quotas Keeps foreign goods out of the country. Can be as low as 0 to keep everything out.
16Need quotas because sometimes even high tariffs can’t keep certain foreign goods from being imported.
17Examples Bush administration put a quota on steel. This protected American steel jobs, but it made steel cost more.
18Embargo Completely restricts all trade with a particular country. Involuntary
19Trade ProtectionProtectionists – favor trade barriers that protect domestic industries
20Free Traders – favor fewer or even no trade restrictions
215 Arguments National Defense Promoting Infant Industries Protecting Domestic JobsKeeping the Money at HomeBalance of Payments
22National DefenseArgue that nations without trade barriers become too dependent on other nations.Might need supplies for wartime and could be unable to get them.
23Infant IndustriesNew industries should be protected from foreign competitionWant trade barriers (for at least a short time)
24Domestic JobsTariffs and quotas protect domestic jobs from cheap foreign labor.Most used argument.
25Keeping Money at HomeLimiting imports will keep American money in the United States.Counter-argument: American money that goes abroad will come back anyways.
26Balance of PaymentsDifference between the money paid and received from other nations when they engage in international trade.
27WTOWorld Trade OrganizationCreated in 1974 by 23 countries
28Signed the GATT (General Agreement on Tariffs and Trade)
29WTO is an international agency that administers previous GATT trade agreements, settles trade disputes, organizes trade organizations, and provides technical assistance and training for developing countries.
30NAFTA North American Free Trade Agreement Between Mexico, Canada, and the U.S.Proposed by Bush Sr. and finalized by Clinton in 1993
31Reduces tariffs among the 3 countries. Helps ensure that we stay trading partners.Example of free trade theory.
32Foreign ExchangeThe changing of foreign currencies when goods and services are bought and sold
33Exchange RateFix the price of one currency so you can compare it to another.$1.00 (U.S. $) = .84 cents (Euro)
34Trade Deficit When the imports exceed the number of exports. The U.S. has a trade deficit right now.