In this chapter, you will learn to: Identify the policy instruments used by governments to influence international trade flows, understand why governments sometimes intervene in international trade, summarize and explain the arguments against strategic trade policy, describe the development of the world trading system and the current trade issue, explain the implications for managers of developments in the world trading system. | Global Business Today 6e by Charles . Hill McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 6 The Political Economy of International Trade Introduction Free trade refers to a situation where a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country While many nations are nominally committed to free trade, they tend to intervene in international trade to protect the interests of politically important groups Instruments of Trade Policy Question: How do governments intervene in international trade? There are seven main instruments of trade policy Tariffs – specific and ad valorem Subsidies Import quotas Voluntary export restraints Local content requirements Antidumping policies Administrative policies The Case for Government Intervention Question: Why do governments intervene in trade? There are two types of arguments Political arguments are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers) Economic arguments are typically concerned with boosting the overall wealth of a nation (to the benefit of all, both producers and consumers) The Case for Government Intervention Political arguments for government intervention include protecting jobs protecting industries deemed important for national security retaliating to unfair foreign competition protecting consumers from “dangerous” products furthering the goals of foreign policy protecting the human rights of individuals in exporting countries The Case for Government Intervention Economic arguments for government intervention in international trade include The infant industry argument Strategic trade policy The Revised Case for Free Trade New trade theorists believe government intervention in international trade is justified Classic trade theorists disagree Some new trade theorists believe that . | Global Business Today 6e by Charles . Hill McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 6 The Political Economy of International Trade Introduction Free trade refers to a situation where a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country While many nations are nominally committed to free trade, they tend to intervene in international trade to protect the interests of politically important groups Instruments of Trade Policy Question: How do governments intervene in international trade? There are seven main instruments of trade policy Tariffs – specific and ad valorem Subsidies Import quotas Voluntary export restraints Local content requirements Antidumping policies Administrative policies The Case for Government Intervention Question: Why do governments intervene in trade? There are two types of arguments Political arguments are concerned with .
