CHAPTER 6
TRADE REGULATIONS AND INDUSTRIAL POLICIES
CHAPTER OVERVIEW
This chapter discusses the trade regulations of the United States. It also considers the various industrial policies
implemented by nations to enhance the competitiveness of their producers.
The chapter first examines the tariff history of the United States. Of particular importance is the Smoot-Hawley
Act of 1930 and the Reciprocal Trade Agreement Act of 1934 which set the stage for a wave of trade
liberalization. Trade liberalization was further promoted with the advent of the General Agreement on Tariffs and
Trade in 1947 and the World Trade Organization in 1995.
The United States has implemented a series of trade-remedy laws to produce a fair trading environment for all
parties engaged in international trade. These laws include the escape clause, countervailing duties, antidumping
duties, and Section 301 of the Trade Act of 1974. Also of importance is protection of intellectual property rights
and the trade adjustment assistance program.
BRIEF ANSWERS TO STUDY QUESTIONS
1. Traditional protectionist arguments (e.g., protective argument and infant industry) have influenced much of
2. Protectionism in the United States culminated with the passage of the Smoot-Hawley Tariff Act of 1930.
3. Under the normal-trade-relations (most-favored-nation) principle, reductions of trade restrictions agreed to
5. These laws attempt to redress hardships for U.S. producers resulting from policies of foreign firms and
6. Intellectual property refers to inventions, ideas and processes that are registered with the government and
which awards the inventor (author) exclusive rights to use the invention for a given period of time.
8.The Tokyo Round of multilateral trade negotiations emphasized the role of nontariff trade barriers that gained in
importance during the 1960s and 1970s. Codes of conduct were agreed to concerning nontariff trade barriers.
9. Industrial policies of the United States have been less formal than those of Europe and Japan. The U.S.
10. The U.S. as a whole gains from the foreign subsidy since the resulting increases in consumer surplus
more than offset the reduction in producer surplus.
11. Strategic trade policy refers to governmental assistance provided to support key industries that are
considered important to future domestic economic growth and provide widespread benefits to society.
12. Economic sanctions refer to trade and financial restrictions levied against a foreign country. Such
restrictions are designed to impose economic hardship on the people of the foreign nation which will lead
13. a. 4 tons, 8 tons, 4 tons, $800, $3200.
b-2. Hurts, falls by $600, rises by $1800, benefits by $1200.