Strategic trade policy also suggests that governments can help firms overcome

Strategic trade policy also suggests that governments

This preview shows page 10 - 12 out of 20 pages.

governments can help firms from their countries attain these advantages. Strategic trade policy also suggests that governments can help firms overcome barriers to entry into industries where foreign firms have an initial advantage.THE REVISED CASE FOR FREE TRADE A) While strategic trade policy identifies conditions where restrictions on trade may provide economic benefits, there are two problems that may make restrictions inappropriate: retaliation and politics. Retaliation and Trade WarB) Krugman argues that strategic trade policies aimed at establishing domestic firms in a dominant position in a global industry are beggar-thy-neighbor policies that boost national income at the expense of other countries. A country that attempts to use such policies will probably provoke retaliation.Video Note: The iGlobe U.S. Economist Krugman Wins Nobel Prize in Economicsexplores Krugman’s contributions to the fields of international business and economics.6-10
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Chapter 06 - The Political Economy Of International TradeDomestic Politics C) Governments do not always act in the national interest when they intervene in the economy. Instead special interest groups may influence governments. Thus, a further reason for not embracing strategic trade policy, according to Krugman, is that such a policy is almost certain to be captured by special interest groups within an economy, who will distort it to their own ends.DEVELOPMENT OF THE GLOBAL TRADING SYSTEMA) Many governments recognize the value of unrestricted free trade, but are hesitant to unilaterally lower their trade barriers in case other countries do not follow suit. Since World War II, an international trading framework has evolved that enables governments to negotiate a set of rules to govern cross-border trade and lower trade barriers. For the first 50 years, the framework was known as the General Agreement on Tariffs and Trade (GATT). For the last 15 years, it has been known as the World Trade Organization (WTO).From Smith to the Great Depression B) Up until the Great Depression of the 1930s, most countries had some degree of protectionism. Great Britain, as a major trading nation, was one of the strongest supporters of free trade.C) Although the world was already in a depression, in 1930 the United States enacted the Smoot-Hawley Act, which created significant import tariffs on foreign goods. As other nations took similar steps and the depression deepened, world trade fell further. 1947-1979: GATT, Trade Liberalization, and Economic Growth D) After WWII, the United States and other nations realized the value of freer trade, and established the General Agreement on Tariffs and Trade (GATT). E) The approach of GATT (a multilateral agreement to liberalize trade) was to gradually eliminate barriers to trade. Over 100 countries became members of GATT, and worked together to further liberalize trade. Teaching Tip: A full review of GATT, containing an actual copy of the agreement, is available at {}. 1980-1993: Protectionist TrendsF) During the 1980s and early 1990s the world trading system as “managed” by GATT came under strain.
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