Strategic Trade Policy and Trade Blocs

Strategic Trade Policy and Trade Blocs - Strategic Trade...

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Strategic Trade Policy and Trade Blocs From Last Time Anything a tariff can do to encourage domestic production a subsidy can do at a smaller net national loss because, unlike the tariff, a subsidy does not raise the price to domestic consumers. The world price is set by the supply and demand for imports. With an optimal tariff, the world price falls because the higher domestic price due to the tariff causes consumers to purchase less. So, even though consumers are paying a higher price because of the tariff, the nation gains because it is able to purchase the product from other countries at a lower world price. Import quotas would cut imports first. The decrease in supply would raise the price causing domestic firms to increase production. We are going to discuss the politics of trade after the exam. Political influence determines which industries receive trade protection. The spillover argument for trade protection is based on the idea that an industry generates
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Strategic Trade Policy and Trade Blocs - Strategic Trade...

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