Formulation of N.T.P

Formulation of N.T.P -...

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Chapter 2: Formulation of National Trade Policies      Objectives Present the major arguments in favor of and against governmental intervention in international trade Identify the advantages and disadvantages of adopting an industrial policy Analyze the role of domestic politics in formulating a country’s international trade policies Describe the major tools countries use to restrict trade Specify the techniques countries use to promote international trade Explain how countries protect themselves against unfair trade practices Rationales for Trade Intervention Should a national government intervene to protect the country’s domestic firms by taxing foreign goods entering the domestic market or constructing other barriers against imports? Should a national government directly help the country’s domestic firms increase their foreign sales through export subsidies, government-to-government negotiations, and guaranteed loan programs? -Many firms benefit from international trade with foreign markets as rich source of additional customers. Exports generate domestic jobs national gov promote success of their countries’ domestic firms in international markets. But, firms believe that their foreign competitors have gained an unfair advantage as a result of policies adopted by their gov. So, in the commercial aircraft market, a firm may ask its national gov for protection against the foreigners. Two principal issues on appropriate trade policies: Free Trade or Fair Trade? USA: trade policy debate Gov promote “free” trade or “fair” trade. - Free trade implies that the national gov exerts minimal influence on the X & M decisions of private firms and individuals. - Fair trade , called managed trade , suggests that the national gov should actively intervene to ensure that domestic firms’ X receive an equitable share of foreign markets & that M are controlled to minimize losses of domestic jobs and market share in specific industries. Some fair traders also argue that the gov should ensure a “ level playing field ” on which foreign and domestic firms can compete on equal terms . sounding reasonable, the “level playing field argument is often used to justify policies that restrict foreign competition. Industry-Level Arguments Voluntary exchange makes both parties to the transaction better off and allocates resources to their highest valued use. Adam Smith s view ( Invisible Hand ), welfare of a country and its citizens is best promoted by allowing self-interested individuals , regardless of where they reside, to exchange goods, services, and assets as they see fit. BUT, many businesspeople, politicians, and policy makers believe that, deviations from free trade are appropriate .
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Four industry-level arguments related to free trade policy: National Defense Argument -Country must be self-sufficient in critical raw materials , machinery, and technology or else be vulnerable to foreign threats
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