Government Intervention in International Trade Tariff – tax placed on imported goods Tariff – tax placed on imported goods ex. 10 percent on imports of textiles and shoes ex. 10 percent on imports of textiles and shoes Quota- number or proportion restrictions Quota- number or proportion restrictions ex. restraint on number of cars exported from Japan in the 1980s ex. restraint on number of cars exported from Japan in the 1980s

Government Intervention in International Trade cont. Regulations to limit trade Regulations to limit trade ex. Federal Drug Administration’s test requirements on imported pharmaceuticals ex. Federal Drug Administration’s test requirements on imported pharmaceuticals

Arguments in Limitation of Trade National defense, infant industry, preservation of domestic jobs, maintenance of a diverse economy, and prevention of exploitation National defense, infant industry, preservation of domestic jobs, maintenance of a diverse economy, and prevention of exploitation Most economist argue- limits on trade fundamentally allow domestic producers to be inefficient and increase costs to domestic consumers Most economist argue- limits on trade fundamentally allow domestic producers to be inefficient and increase costs to domestic consumers

Tariffs Smoot-Hawley Act reached a high average rate of 20 percent Smoot-Hawley Act reached a high average rate of 20 percent Over time, the United States has reduced tariffs Over time, the United States has reduced tariffs