National Trade Policies:
Two principal issues have shaped the debate on appropriate trade policies:
+protect country's domestic firms by taxing foreign goods or constructing import barriers.
+help domestic firms increase increase their foreign sales through export subsidies, government-to-government
negotiations, and guaranteed loan programs.
Free trade implies that the national government exerts minimal influence on the exporting and importing decisions of
private firms and individuals.
Fair trade, sometimes called managed trade, suggests that the national government should actively intervene to ensure
that domestic firms’ exports receive an equitable share of foreign markets and that imports are controlled to minimize
losses of domestic jobs and market share in specific industries.
Industry-Level Arguments:
National defense argument: has often been used as a reason to support governmental protection of specific
industries. country must be self-sufficient in critical raw materials, machinery and technology or else be vulnerable to
foreign threats when world events turn hostile to them. Ex: After the war, Japan banned the importation of rice as a
means of promoting domestic self-sufficiency in the country’s dietary staple. / Wool industry in US.
Infant industry argument: when a newly independent nation is starting manufacturing processes, high tariffs can
temporarily be put on foreign imports to protect the firm from foreign competition until firms are fully established.
maintenance of existing Jobs: jobs in high-wage countries are threatened by imports from low-wage countries, so
in order to maintain existing employment levels, firms and workers often petition for governments to provide temporary
assistance in the form of high tariffs, quotas, or other barriers. Ex: The assistance may be temporary, as was the case when
Harley-Davidson received tariff protection from Japanese imports for five years in the mid-1980s to allow the firm to
revamp its operations and restore its image in the marketplace.
strategic trade theory: this theory applies only to industries capable of supporting only a few firms worldwide.
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 certain oligopolistic industries
national trade policies:
economic development programs: An important policy goal of many governments, particularly those of
developing countries, is economic development. (Morocco is a major producer of phosphates). On Some countries based
their economic development on heavy reliance on exports. Export promotion strategy: an economic development
program where a country encourages firms to compete in foreign markets by harnessing some advantage the country
possesses such as low labor costs. import substitution strategy: an economic development program where a country
encourages the growth of domestic manufacturing industries by erecting high barriers to imported goods.
industrial policy: the national gov. identifies key domestic industries critical to the country's future economic
growth and formulates programs that promote their competitiveness. Pros: (- able to become a leader in your industry -
attract lots of talent) Cons: (- subsidies come from citizen's taxes - hard to identify the right industries to support).
public choice analysis: a branch of economics that analyzes public decision making, the 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. in short, special interest will often dominate general interest.
