24 Political Economy of Trade Policy, Part 2

24 Political Economy of Trade Policy, Part 2 - Political...

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1 1 Political Economy of Trade Policy • Agenda: – International Trade Negotiations – International Trade Agreements •A B r ie f H i s to ry • A Brief History of Trade Rounds – Preferential Trading Agreements 2 International Trade Negotiations • The great postwar liberalization of trade was achieved through international trade negotiations , i.e., governments agreed to engage in mutual tariff reduction. 3 International Trade Negotiations The Advantage of Negotiations: Two reasons why it is easier to lower tariffs as part of a mutual agreement than to do so as a unilateral policy. 1. It helps mobilize support for freer trade. 2. It helps governments avoid getting caught in trade wars. 4 International Trade Negotiations The Advantage of Negotiations (continued): 1. Mobilizing support for freer trade:
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2 5 International Trade Negotiations The Advantage of Negotiations (continued): 2. The problem of trade warfare : a. Only 2 countries: the U.S. and Japan. b. Only 2 trade policy choices: free trade or protectionism. c. Both countries can assign “values” to any particular policy outcome. 6 The Problem of Trade Warfare 7 International Trade Agreements A Brief History: – Internationally coordinated tariff reduction as a trade policy dates back to the 1930s after the U.S. passed the Smoot-Hawley Act which raised tariff rates steeply. 8 International Trade Agreements A Brief History (continued): – To reduce tariff rates, reductions needed to be linked to some concrete benefits for exports. • The initial solution to this political problem was bilateral tariff negotiations . • However, bilateral negotiations do not take full advantage of international coordination.
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3 9 International Trade Agreements A Brief History (continued): – The next step in international trade liberalization was to proceed to multilateral tariff negotiations involving a number of countries. • This began immediately after World War II when 23
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24 Political Economy of Trade Policy, Part 2 - Political...

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