Strategic Trade Policy V.Tutor

Strategic Trade Policy V.Tutor - Strategic Trade Policy...

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1 Strategic Trade Policy Tutional BBA International Economics. 2 Strategic Trade Policy The theory behind Strategic Trade Policy is that government can assist domestic companies in capturing economic profits from foreign competitors. A standard example is the aircraft industry. With high fixed cost. Assume that two competing manufacturers, Boeing and Airbus, are considering whether to construct a new aircraft. If either firm manufactures by itself, it will attain profits of $100 million. If both firms manufacture, they will each suffer a loss of $5 million 3 Airbus 0 Boeing 0 Airbus 100 Boeing 0 Doesn’t Produced Airbus 0 Boeing 100 Airbus -5 Boeing -5 Produces Doesn’t Produced Produces Airbus Boeing Without Subsidy Airbus 0 Boeing 0 Airbus 110 Boeing 0 Doesn’t Produced Airbus 0 Boeing 100 Airbus 5 Boeing -5 Produces Doesn’t Produced Produces Airbus Boeing With Subsidy 4 Now assume the governments decide to subsidize Airbus production in the amount of $10 million.
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