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c hapter 9

c hapter 9. formulation of national trade policies. Chapter Objectives 1. Present the major arguments in favor of and against governmental intervention in international trade Identify the advantages and disadvantages of adopting an industrial policy

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c hapter 9

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  1. chapter 9 formulation of national trade policies

  2. Chapter Objectives 1 • 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 9-2

  3. Chapter Objectives 2 • 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 9-3

  4. Issues on 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? 9-4

  5. Free Trade or Fair Trade? Free Trade Fair Trade 9-5

  6. Industry-Level Arguments National Defense Infant Industry Maintenance of Existing Jobs Strategic Trade 9-6

  7. National Defense Argument • Country must be self-sufficient in critical raw materials, machinery, and technology or else be vulnerable to foreign threats. • Appeals to general public • Protects steel, electronics, and machine tools industries, and merchant marines 9-7

  8. Infant Industry Argument • Imposition of tariffs to give U.S. firms temporary protection from foreign competition until firms are fully established • Powerful economic development strategy • Which industries should be protected? For how long? 9-8

  9. Maintenance of Existing Jobs • Jobs in high-wage countries threatened by imports from low-wage countries • Forms of assistance • Tariffs • Quotas 9-9

  10. Strategic Trade Theory Strategic trade theory suggests that a national government can make its country better off if it adopts trade policies that improve the competitiveness of its domestic firms in such oligopolistic industries. 9-10

  11. National Trade Policies Economic Development Programs Industrial Policy Public Choice Analysis 9-11

  12. Economic Development Programs Export Promotion Strategy Import Substitution Strategy 9-12

  13. Industrial Policy When industrial policy is pursued, the national government identifies key domestic industries critical to the country’s future economic growth and then formulates programs that promote their competitiveness. 9-13

  14. Public Choice Analysis Special interest groups are willing to work harder for the passage of laws favorable to their interests than the general public is willing to work for the defeat of laws unfavorable to its interests. 9-14

  15. Map 9.1 An Effect of the Jones Act 9-15

  16. Reasons for Tariffs • Tariffs raise revenues for national governments • Tariffs act as a barrier to trade 9-16

  17. Tariff Barriers to International Trade Export tariffs Ad valorem Import tariffs Specific Compound 9-17

  18. More than 300 workers lost their jobs when this Detroit auto plant closed. 9-18

  19. Figure 9.3 Impact of an Import Tariff on Demand for U.S.–Made Minivans 9-19

  20. Quotas Numerical export controls Product and testing standards Restricted access to distribution networks Public-sector procurement policies Regulatory controls Currency controls Investment controls Local-purchase requirements Nontariff Barriers 9-20

  21. Figure 9.4 Tariff Rate Quota on Widgets A tariff rate quota imposes high tariff rates on imports above the threshold level. 9-21

  22. These Indian sugar cane workers receive less for their crops because of the tariff-rate quota imposed by the U.S. 9-22

  23. Product and testing standards Restricted access to distribution networks Public-sector procurement policies Local-purchase requirements Regulatory controls Currency controls Investment controls Forms of Nonquantitative NTBs 9-23

  24. Figure 9.5 Types of Barriers to International Trade 9-24

  25. Promotion of International Trade Subsidies Foreign Trade Zones Export Financing Programs 9-25

  26. Map 9.2 Foreign Trade Zone on Mauritius 9-26

  27. Controlling Unfair Trade Practices • International Trade Administration (ITA) • Division of U.S. Department of Commerce • Determines whether an unfair trade practice has occurred • Confirmed cases transferred to U.S. International Trade Commission (ITC) • Two types of unfair trade practices • Government subsidies • Unfair pricing practices 9-27

  28. Controlling Unfair Trade Practices Countervailing Duties Antidumping Regulations 9-28

  29. Objectives of Unfair Trade Practice Laws • Promote global efficiency by encouraging production in those countries that can produce a good most efficiently • Ensure that trade occurs on the basis of comparative advantage, not the size of government subsidies • Protect consumers from predatory behavior 9-29

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