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The Political Economy of International Trade

McGraw-Hill/IrwinGlobal Business Today, 5e

© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

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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.

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IINSTRUMENTS OF TRADE POLICY

There are seven main instruments of trade policy:• Tariffs• Subsides• Import Quotas• Voluntary Export Restraints• Local Content Requirements• Administrative Polices• Antidumping Policies

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Chapter 6: The Political Economy of International Trade

THE CASE FOR GOVERNMENT INTERVENTION

There are two types of arguments for government intervention: political and economic.

• 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)

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• Political Arguments for Intervention

• Economic Arguments for Intervention

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THE REVISED CASE FOR FREE TRADE

Two situations where restrictions on trade may be inappropriate: retaliation and politics.

• Retaliation and Trade War

• Domestic Politics

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DEVELOPMENT OF THE WORLD TRADING SYSTEM

How has the current world trade system emerged?

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• From Smith to the Great Depression• 1947-1979: GATT, Trade Liberalization, and Economic Growth• 1980-1993: Protectionist Trends• The Uruguay Round and the World Trade Organization• WTO: Experience to Date• The Future of the WTO: Unresolved Issues and the Doha Round

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IMPLICATIONS FOR MANAGERS

How are companies affected by trade barriers?

• Trade Barriers and Firm Strategy

• Policy Implications