International Economics By Robert J. Carbaugh 9th Edition

1. International EconomicsBy Robert J. Carbaugh9th Edition Chapter 7: Trade Regulations and Industrial Policies

2. Trade regulation The US and international trade • Smoot-Hawley Tariff Act (1930) • High point of US protectionism • Reciprocal Trade Agreements Act (1934) • Introduced “most favored nation” (MFN) clause (now called “normal trade relations”) • General Agreement on Tariffs and Trade [GATT] (1947) • World Trade Organization (1995) Carbaugh, Chap. 7

3. Trade regulation GATT - Postwar trade liberalization • Founded on the principle of non-discrimination, including: • "Normal Trade Relations" treatment • National treatment of imported goods • Included trade dispute resolution mechanisms • Committed signatories to use tariffs rather than quotas Carbaugh, Chap. 7

4. Trade regulation GATT - Postwar trade liberalization (2) • Started regular negotiations to reduce tariffs and NTBs • Exceptions allowed nations to sidestep the rules when they felt threatened, without abandoning the entire process Carbaugh, Chap. 7

5. Trade regulation GATT negotiations • Early bilateral agreements • Kennedy Round (1964-67) - first multi-lateral negotiations; focus on tariff cuts • Tokyo Round (1973-79) - focus on lowering non-tariff barriers • Uruguay Round (1986-93) - covered new issue areas (intellectual property, services, agriculture), included developing nations Carbaugh, Chap. 7

6. Trade regulation GATT becomes WTO • GATT agreement became World Trade Organization in January 1995 • WTO members must adhere to all agreements negotiated under GATT (not pick and choose) • Covers trade in goods, services, intellectual property and investment • WTO strengthens GATT's dispute-settlement mechanisms Carbaugh, Chap. 7

7. Trade regulation Controversy over WTO • Worries about infringement on national sovereignty • Concern about trade liberalization undermining environmental protection • WTO became a target for broader opposition to "globalization" Carbaugh, Chap. 7

8. Trade regulation US trade remedy laws • Escape clause • Countervailing duties • Anti-dumping duties • Unfair trade practices (Section 301) • Protection of intellectual property • Trade adjustment assistance Carbaugh, Chap. 7

9. Trade regulation Effects of dumping, subsidies, and remedies Carbaugh, Chap. 7

10. Trade regulation Effects of dumping, subsidies, and remedies Carbaugh, Chap. 7

11. Industrial policy US “industrial policy” • Broad policies to foster economic growth • Aid to targeted sectors • Agriculture, ship-building, energy, technology, manufacturing (autos, for example), etc. • Tariff protection of declining sectors • Export promotion and financing • Export-Import Bank • Commodity Credit Corporation • Knowledge based growth policy Carbaugh, Chap. 7

12. Industrial policy Japan’s industrial policy • Trade protection and subsidies (especially early on) • Assistance to targeted sectors • Shipbuilding, steel, autos, machine tools, high-technology • Ministry of International Trade and Industry (MITI) to target aid to promising sectors • It is unclear how much of Japan’s success can be attributed to government assistance Carbaugh, Chap. 7

13. Industrial policy Strategic trade policy • Response to competition in sectors with imperfect competition - small number of producers, each large enough to affect market price • Subsidies can give the advantage to domestic manufacturers over foreign ones • Critics argue that it is too difficult to determine where assistance makes economic sense Carbaugh, Chap. 7

14. Industrial policy Welfare effects of strategic trade policy Carbaugh, Chap. 7

15. Trade regulation Economic sanctions • Trade sanctions • Financial sanctions • Success of sanctions depends on: • Number of nations imposing sanctions • Nature of ties between target and imposing nations • Extent of political opposition in target nation • Cultural factors in target nation Carbaugh, Chap. 7