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Why it would be foolish for the United States to enact tariffs and embargos designed to reduce the trade deficit with other countries and if a nation has a trade surplus with the rest of the world (its current account), what does that mean about its capital flow? (capital account)

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Samantha Balando
Samantha BalandoLv7
28 Sep 2019

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Related questions

The fact that the United States has a trade deficit means that

a. U.S. workers cannot compete with workers overseas.

b. the United States has a surplus in its capital account.

c. interest rates in the United States are low compared to the world average.

d. the United States has a deficit in its capital account.

Consider the following strategic situation in which the United States and the European Union are engaged in trade negotiations. Both countries must decide whether to reduce their tariffs or impose new tariffs. The best outcome for both countries is for them to impose new tariffs and for the other side to reduce tariffs; they could then export more easily to the other country and they would obtain increased revenue from the new tariffs. The worst outcome for both countries is for them to reduce tariffs and for the other country to increase tariffs; they would lose jobs as a result of reduced exports and the other country would benefit from their lower tariffs. Of the remaining two outcomes, both countries prefer the outcome in which they reduce tariffs to the one in which they both impose new tariffs. If both countries reduce their tariffs, then each country can benefit from increased free trade. If both countries impose new tariffs, there is a trade war in which each country sees a decline in trade and a loss of jobs. Based on this story, the preference ordering for the EU over the four possible outcomes is:

• Impose; Reduce > Reduce; Reduce > Impose; Impose > Reduce; Impose.

And the preference ordering for the United States is:

• Reduce; Impose > Reduce; Reduce > Impose; Impose > Impose; Reduce,

where the EU’s action is given first, the United States’ action is given second, and “>” means “is strictly preferred to.”

1. Using the ordinal preferences (4, 3, 2, 1) to capture these preference orderings, fill in the empty payoff matrix. Based on the preference orderings in the Free Trade Game, what is this sort of game more generally called?

a. prisoner's dilemma

b. pure coordination game

c. chicken

d. asymmetric coordination game

2. what are the nash equilibrium of this game?

a. reduce tariffs; reduce tariffs

b. reduce tariffs; impose tariffs

c. impose tariffs; reduce tariffs

d. impose tariffs; impose tariffs

3. Does the EU have a dominant strategy in the Free Trade Game?

a) Yes, reduce tariffs.

b) Yes, impose new tariffs.

Does the United States have a dominant strategy in the Free Trade Game?

a) Yes, reduce tariffs.

b) Yes, impose new tariffs.

What is (are) the expected outcome (outcomes) of the game?

a) Increased free trade.

b) Lost jobs in EU, increased revenue for United States.

c) Increased revenue in EU, lost jobs in United States.

d) Trade war.

1. Which of the following trading partners of the United States became its number one "trade problem" at the beginning of the 21st century?

United Kingdom

Japan

Germany

Canada

China

2. Which of the following presents the correct picture of the outcome of increased world trade after the 1950s, contrary to Servan-Schreiber's prediction?

Third World countries have been excluded from this economic growth leading to stark imbalances in wealth.

The European Union has become the center of world trade, taking the position away from the United States.

The United States has continuously maintained the positive balance of trade it attained during the 1950s.

Economic power and potential has become more evenly distributed among the countries of the world.

SDRs and gold have lost their utility as the basic medium of financial exchange and most monetary statistics have started relating to the U.S. dollar.

3. The _____ of the balance-of-payments statement is most likely to record all merchandise exports, imports, and services plus unilateral transfers of funds.

current account

capital account

credit account

receivables account

reserves account

4. The Foreign Corrupt Practices Act (FCPA) was specifically addressed in the _____ section of the Omnibus Trade and Competitiveness act.

market access

export expansion

import relief

foreign exchange regulation

trade deficit

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