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hill_gbt6e_PPT_Chapter06 - Introduction Free trade refers...

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6-1 Introduction Free trade refers to a situation where a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country While many nations are nominally committed to free trade, they tend to intervene in international trade to protect the interests of politically important groups
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6-2 Instruments of Trade Policy Question: How do governments intervene in international trade? There are seven main instruments of trade policy 1. Tariffs specific and ad valorem 2. Subsidies 3. Import quotas 4. Voluntary export restraints 5. Local content requirements 6. Antidumping policies 7. Administrative policies
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6-3 The Case for Government Intervention Question: Why do governments intervene in trade? There are two types of arguments 1. Political arguments are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers) 2. Economic arguments are typically concerned with boosting the overall wealth of a nation (to the benefit of all, both producers and consumers)
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6-4 The Case for Government Intervention Political arguments for government intervention include 1. protecting jobs 2. protecting industries deemed important for national security 3. retaliating to unfair foreign competition 4. protecting consumers from “dangerous” products 5. furthering the goals of foreign policy 6. protecting the human rights of individuals in exporting countries
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6-5 The Case for Government Intervention Economic arguments for government intervention in international trade include 1. The infant industry argument 2. Strategic trade policy
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6-6 The Revised Case for Free Trade New trade theorists believe government intervention in international trade is justified Classic trade theorists disagree Some new trade theorists believe that while strategic trade theory is appealing in theory, it may not be workable in practice – they suggest a revised case for free trade Two situations where restrictions on trade may be inappropriate Retaliation Domestic Policies
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6-7 Development of the World Trading System Up until the Great Depression of the 1930s, most countries had some degree of protectionism In 1930, the U.S. enacted the Smoot- Hawley Act , which created significant import tariffs on foreign goods Other nations took similar steps and as the depression deepened, world trade fell further
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6-8 Development of the World Trading System Since World War II, an international trading framework has evolved to govern world trade In its first fifty years, the framework was known as the General Agreement on Tariffs and Trade (GATT) Since 1995, the framework has been known as the World Trade Organization (WTO)
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6-9 Development of the World Trading System Since its establishment, the WTO has emerged as an effective advocate and facilitator of future trade deals, particularly in such areas as services
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