Reducing barriers to international trade can expand markets and create gains that continue over time. This lesson explains why governments use tariffs, how the World Trade Organization (WTO) works to reduce barriers, and why measured estimates may not capture all the benefits of trade.
A tariff is a tax that a government places on an imported good. Tariffs can make imported products more expensive in the domestic market, affecting both consumers and producers.
All flashcards
What is a tariff?
A tax a government places on an imported good; it may protect domestic interests but can raise costs for consumers and businesses.
What role does the WTO play in reducing trade barriers?
It provides a forum where countries negotiate agreements intended to reduce barriers to trade, including tariffs.
What is a trade negotiating round?
A process in which countries negotiate toward an agreement, pause, and later begin negotiations on another agreement.
What did the WTO estimate about the Doha Round in 2010?
It estimated that improved market access and agricultural subsidy reforms could add $121–$202 billion to the world economy.
Name trade benefits that can be difficult to measure.
Greater product variety, stronger competition, and cross-border transfer of knowledge may be difficult to capture fully in economic statistics.
Quiz questions
What is a tariff?Answer: A tax a government places on imported goods.
What does comparative advantage describe?Answer: An ability to perform an activity at a lower opportunity cost than another activity.
What is a global value chain?Answer: A production process with different stages or components located in different countries.
What did the WTO estimate in 2010 that the proposed Doha Round changes could add to the world economy?Answer: $121–$202 billion through improved market access and agricultural subsidy reforms.
Why can trade create overall benefits while also causing disruption?Answer: Specialization and shifting production can benefit consumers and firms while making adjustment difficult for some workers and communities.
Based on Principles of Economics 3e by Steven A. Greenlaw, David Shapiro, Daniel MacDonald (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.