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Unformatted text preview: Chapter 9: FOR MU LAT ION OF NAT IONAL TRADE POL IC IES Rationales for T rade Intervention Two principle issues have shaped the debate on appropriate trade polices: 1. Protecting the countrys domestic firms by taxing foreign goods r constructing barriers against imports 2. Directly helping domestic firms through exports subsidies, government to government negotiations, and granteed loans programs F ree trade: implies that the national government exerts minimal influence on exporting and importing decisions of private firms and individuals. Fair T rade: sometimes called managed trade, suggests that national government should actively intervene to ensure that domestic firms exports receive equitable share of foreign markets and that imports are controlled to minimize losses of domestic jobs and market share of specific industries. I ndustry-Level Arguments The following are primary arguments against free trade: National Defense Argument National defense has often been used as a reason to support governmental protection of specific industries. Because world events can suddenly turn hostile to a countrys interests, the national defense argument holds that a country must be self- sufficient in critical raw materials, machinery, and technology or else be vulnerable to foreign threats I nfant Industry Argument Alexandar Hamilton, the first US secretary of treasury articulated the infant industry argument in 1791. He feared that infant or recently developed business would not survive due to fierce competition from outside firms. He fought for the imposition of tariff on numerous imported manufactured goods to give US firms temporary protection from foreign competition until they could fully establish themselves. Example: Japan put tariff on fabricated copper. Maintenance of Existing Jobs To maintain existing employment levels firms and workers often petition their governments for relief from foreign competition. Assistance may come from tariff or NTBs. Strategic T rade Theory When firms and labor union official plead for government intervention to help compete internationally, their efforts are usually criticized by economists, who claim that such intervention ultimately harms the economy. The strategic trade theory was developed as a new and better model. I t provides new theoretical justification for government intervention. I t applied to those industries capable of supporting only a few fi rms worldwide. It suggests that a national government can make its country better off if it adapts trade policies that improve the competitiveness of its domestic firms in such oglopistic industries. (look at Figure 9.1 and 9.2, pg 242) In the figures we see what a government subsidy can do to make domestic firms more competitive and successful....
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This note was uploaded on 04/07/2009 for the course INTERNATIO 354 taught by Professor Nicholasmartizionis during the Spring '09 term at McGill.
- Spring '09