Chapter 5: A State-Centered Approach to Trade Politics

Multiple Choice Questions

1. The state-centered approach to trade politics argues that national policymakers intervene in the economy in pursuit of a) national objectives that are dependent on domestic groups’ self-interested concerns. b) national objectives that are independent of domestic groups’ self-interested concerns. c) international objectives that are dependent on foreign groups’ self-interested concerns. d) international objectives that are independent of foreign groups’ self-interested concerns. e) national objectives that are dependent on foreign groups’ self-interested concerns.

Answer: b

2. In order to claim that a tariff and other forms of government intervention raise social welfare one must be able to demonstrate that a) something prevents factors from shifting into industries that yield lower costs than are available in other sectors in the economy. b) something prevents factors from shifting into industries that yield higher costs than are available in other sectors in the economy. c) something prevents factors from shifting into industries that yield lower returns than are available in other sectors in the economy. d) something prevents factors from shifting into industries that yield higher returns than are available in other sectors in the economy. e) short term losses will be greater than long term gains.

Answer: d

3. Economies of scale arise when the average cost of production falls a) as the number of units falls. b) as the number of units rises. c) as specific experience skills decline. d) as specific experience skills increase. e) as profits increase.

Answer: b

4. In cases of infant industries, even with domestic economies of scale, a) a new firm will be able to effectively compete once it begins to export. b) a new firm will find it easier to compete with tariffs to protect it from more efficient foreign competitors. c) a new firm will find it harder to compete with tariffs to protect it from less efficient foreign competitors. d) government procurement may be the only way to make them internationally competitive. e) export subsidies may be necessary to achieve economies of experience

Answer: b

5. Economies of experience arise when the cost of production falls a) as the number of units falls. b) as the number of units rises. c) as specific experience skills decline. d) as specific experience skills increase. e) as profits increase.

Answer: d

6. Subsidies are more efficient than tariffs because they better a) target tariff barriers by foreign producers. b) target higher long term foreign producers’ costs. c) lower higher short term domestic producers’ costs. d) raise higher short term domestic producers’ costs. e) lower consumer welfare benefits.

Answer: c

7. An infant industry firm may be reluctant to borrow from private markets instead of relying on a public subsidy when they fear that a) experienced workers will go to work for other firms. b) private capital markets are too efficient. c) private capital markets are too week. d) they will not achieve sufficient economies of scale. e) governments will not extend them loans.

Answer: a

8. The logic of infant industry protection was first developed to a) improve the growth of German industries in competition with American ones. b) improve the growth of American industries in competition with British ones. c) improve the growth of Japanese industries in competition with American ones. d) improve the growth of American industries in competition with Japanese ones. e) improve the growth of American industries in competition with German ones.

Answer: b

9. In the context of industrial policies, strong states are characterized by a a) high degree of de-centralization of authority. b) low degree of coordination among state agencies. c) large number of channels through which societal actors can attempt to influence policy. d) small number of channels through which societal actors can attempt to influence policy. e) powerful business and labor interest groups.

Answer: d

10. In the context of industrial policies, weak states are characterized by a) high degree of centralization of authority. b) high degree of coordination among state agencies. c) large number of channels through which societal actors can attempt to influence policy. d) small number of channels through which societal actors can attempt to influence policy. e) weak business and labor interest groups.

Answer: c a) Great Britain b) Germany c) United States d) Japan e) Post-Soviet Russia

11. ___________ is often depicted as the preeminent example of a strong state that has been able and willing to use industrial policy to promote economic development.

Answer: d a) Great Britain b) France c) United States d) Japan e) China

12. ___________ is often depicted as an example of a weak state that has been unable and unsuccessful in using industrial policy to promote economic development.

Answer: c

13. The Biden administration has made green industrial policy (GIP) central to its climate change strategy. GIP uses a) state investment, incentives, and regulations to promote the development and deployment of environmentally sustainable technologies. b) state investment, incentives, and regulations to promote the development and deployment of environmentally un sustainable technologies. c) federal investment, incentives, and regulations to promote the development and deployment of environmentally sustainable technologies. d) infant industry incentives, and regulations to promote the development and deployment of environmentally sustainable technologies. e) military investment, incentives, and regulations to promote the development and deployment of environmentally sustainable technologies

Answer: a

14. Opponents of green industrial policies claim that government intervention a) misdirects investment to more productive industries. b) misdirects investment to less productive industries. c) protects against corruption. d) that foreign industry will have an unfair advantage over their American competitors. e) that American industry will have an unfair disadvantage because Europeans care more about climate change.

Answer: b a) They earn a higher-than-normal return on investment. b) They pay higher wages to workers than standard manufacturing industries. c) They boost the international competitiveness of such industries. d) The welfare gains generated by this industry are substantially larger than the welfare losses incurred during the period of subsidy. e) Choosing these economic winners leads to less corruption.

15. Which of the following reasons is NOT one of the ones used to justify subsidies to high technology industries in advanced industrialized countries?

Answer: e -

16. Oligopolistic global markets are characterized by a) profits greater than earned in equally risky investments. b) higher incomes for workers. c) lower costs than those incurred in equally risky investments. d) a smaller number of competing firms. e) a larger number of competing firms. Answer: d

17. Strategic trade theory assumes that a) defense-related procurement practices are designed to meet national security objectives. b) in the absence of intervention by any government, high tech industries offer a first-mover advantage. c) In the absence of intervention by any government, high tech industries offer a last-mover advantage. d) societies will be especially interested in oligopolistic high-tech industries because of zero-sum excess returns. e) the combination of economies of scale and experience create higher wages.

Answer: d

18. Countries losing high technology industries as a consequence of industrial policies pursued by other countries a) has not been much of a source of conflict in the international trade system. b) usually don’t respond by supporting their own firms to offset the advantages enjoyed by foreign firms. c) rarely attempt to prevent foreign governments from using industrial policy subsidies. d) has been a source of much conflict in the international trade system. e) is almost entirely the result of different factor advantages as predicted by standard trade theory.

Answer: d

19. In the absence of intervention by any government, the firm that is the first to enter a particular industry will win a first-mover advantage. This first-mover advantage a) arises from economies of scale and experience. b) arises from economies of scale but not experience. c) arises from economies of experience but not scale. d) arises from economies of scale and innovation. e) doesn’t increase national employment and welfare.

Answer: a

20. The semiconductor industry prospered in the US until the early 1980s because a) of earlier government support of funding for research & development (R&D) and defense related purchases. b) tariffs and quotas kept Japanese chips out of the American market. c) the US government restricted the ability of Japanese semiconductor firms to purchase existing American firms. d) tariffs and quotas kept European chips out of the American market. e) of different factor advantages as predicted by standard trade theory.

Answer: a

21. Micro-foundations are explanations that set out the incentive structure that a) encourages state officials to adopt policies that promote global welfare. b) encourages state officials to adopt policies that promote their re-election. c) encourages state officials to adopt policies that promote national welfare. d) encourages state officials to adopt policies that promote micro-businesses. e) encourages state officials to adopt policies that compensate for factor immobility.

Answer: c

22. Efficiency gains realized as a result of greater experience dynamics are often called a) “moving up the learning curve”. b) “moving down the learning curve”. c) “moving up the indifference curve”. d) “moving down the indifference curve”. e) “moving up the profitability curve”.

Answer: b

23. In general, state-centered approaches are useful because they a) better explain national security micro foundational reward incentives. b) better establish the parameters in which policy must be made. c) better explain how government intervention can improve national welfare. d) better explain state autonomy in democratic political systems. e) better provide a useful check on the tendency to focus exclusively on the interests of interest groups.

Answer: e

24. European global commercial aircraft firms were able to catch up to American firms by the late 1990s because a) they used similar industrial policy tactics used by American governments in a previous era. b) of different sector advantages obtained by European domestic interest groups. c) tariffs and quotas kept American firms out of the European market. d) of late-mover advantages to utilize the most recent technological innovations. e) the US was unsuccessful in of obtaining WTO sanctions against their illegal actions.

Answer: a

25. The seventeen-year US – EU conflict came to a sudden close in June of 2021. The truce in the ongoing conflict for market share was influenced by a) strategic rivalry, though in this case by concerns about Russia. b) strategic rivalry, though in this case by concerns about Japan. c) strategic rivalry, though in this case by concerns about China. d) economic recession in both markets. e) technological innovation in the US.

Answer: c

True-False Questions

1. A state-centered approach argues that national policymakers intervene in the economy in pursuit of objectives that are determined independently from domestic interest groups’ narrow self-interested concerns.

Answer: True

2. The infant industry case for protection argues that there are cases in which newly created firms will not be efficient initially but could be efficient in the long run if they are given time to mature.

Answer: True

3. Economies of scale arise when the unit cost of producing falls as the number of units produced falls.

Answer: False

4. Economies of experience arise when efficient production requires specific skills that can only be acquired through extensive research and development in the industry.

Answer: False

5. Efficiency gains realized as a result of greater skill in production are often called “moving up the learning curve”.

Answer: False

6. Industrial policy can be defined as the use of a broad assortment of instruments in order to channel resources away from some industries and direct them toward those industries that the state wishes to promote.

Answer: True

7. State strength is the degree to which national policymakers are insulated from domestic interest group pressures.

Answer: True

8. Weak states may be less able to implement industrial policies that redistribute societal resources because policymakers need worry less that such policies will have a negative impact on their position of power.

Answer: False

9. Strategic trade theory asserts that many high-tech industries are characterized by oligopolistic competition that often has a first-mover advantage.

Answer: True

10. Countries losing high-technology industries as a consequence of the industrial policies pursued by other countries often respond by supporting their own firms in a similar way.

Answer: True

Essay/Discussion Questions

1. Explain the differences and similarities between society-centered and state-centered approaches to trade politics.

2. Explain the costs and benefits of state-centered rationale for government intervention compared to standard trade theory.

3. Explain the reasons why an industry may or may not be efficient.

4. Explain the differences between economies of scale and economies of experience using the example of commercial aircraft.

5. Explain how state strength determines the political foundation of industrial policies by comparing Japan, France and the United States after WWII.

6. Explain why and how industrial policies in high-technology industries have created so much conflict in international trade.

7. How does strategic trade theory provide the justification for industrial policy in high technology industries?

8. Explain how government R&D subsidies and procurement policies affected strategic trade rivalries in the semiconductor and commercial aircraft industries between the US, Japan & the EU in the past thirty years.

9. Explain how and why the Biden administration has made green industrial policy central to its climate change strategy.

10. What incentive does the state have to act in ways that enhance national welfare? Use contemporary examples.