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Unformatted text preview: Chapter 15 – Arguments for Interventionist Trade Policies CHAPTER 15 ARGUMENTS FOR INTERVENTIONIST TRADE POLICIES Learning Objectives: ■ To understand why trade policy instruments are often part of broader social policy and why other policy instruments might be less costly. ■ To evaluate the effectiveness of trade policy in the presence of market imperfections. ■ To recognize invalid economic arguments for protection. ■ To grasp the role of trade policy in promoting strategic industries and dynamic comparative advantage.. I. Outline Introduction Trade Policy as a Part of Broader Social Policy Objectives for a Nation- Trade Taxes as a Source of Government Revenue- National Defense Argument for a Tariff- Tariff to Improve the Balance of Trade- The Terms-of-Trade Argument for Protection- Tariff to Reduce Aggregate Unemployment- Tariff to Increase Employment in a Particular Industry- Tariff to Benefit a Scarce Factor of Production- Fostering “National Pride” in Key Industries- Differential Protection as a Component of a Foreign Policy/Aid Package Protection to Offset Market Imperfections- The Presence of Externalities as an Argument for Protection- Tariff to Extract Foreign Monopoly Profit- The Use of an Export Tax to Redistribute Profit from a Domestic Monopolist Protection as a Response to International Policy Distortions - Tariff to Offset Foreign Dumping- Tariff to Offset a Foreign Subsidy Miscellaneous, Invalid Arguments Strategic Trade Policy: Fostering Comparative Advantage- The Infant Industry Argument for Protection- Economies of Scale in a Duopoly Framework- Research and Development and Sales of a Home Firm- Export Subsidy in Duopoly- Strategic Government Interaction and World Welfare- Concluding Observations on Strategic Trade Policy Summary 15-1 Chapter 15 – Arguments for Interventionist Trade Policies II. Special Chapter Features In The Real World: The Relative Importance of Trade Taxes as a Source of Government Revenue In The Real World: Costs of Protecting Industry Employment In The Real World: Antidumping Actions in the United States In The Real World: Countervailing Duties in the United States In The Real World: U.S. Motorcycles – A Successful Infant Industry? In The Real World: Airbus Industrie III. Purpose of Chapter The purpose of this chapter is to present and assess various arguments for protection. It is particularly hoped that students will learn to think in terms of benefits and costs and in terms of “who gains?” and “who loses?” when encountering these and other arguments in the media and in everyday discussion. A special effort is made to acquaint students with several recent approaches to protection, approaches that are cast in a framework where departures from the competitive trade model exist. Since many industries are clearly not “competitive” in the traditional microeconomic sense and since the newer approaches have received some attention in the press, an understanding of the arguments can be of practical use.the press, an understanding of the arguments can be of practical use....
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- Spring '08