Economics
Trade Policy
Trade policy refers to a government's rules and regulations regarding international trade. It encompasses measures such as tariffs, quotas, and trade agreements that influence the flow of goods and services across borders. The primary goal of trade policy is to promote economic growth, protect domestic industries, and maintain a balance of trade.
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7 Key excerpts on "Trade Policy"
eBook - ePub- W. Charles Sawyer, Richard L. Sprinkle(Authors)
- 2020(Publication Date)
- Routledge(Publisher)
9 , we examined the effects of tariff and nontariff barriers to trade and discussed how protectionism tends to make a country as a whole worse off. However, these effects are not uniform. The gains to consumers tend to be widely dispersed and in many cases hardly noticeable. However, the losses to domestic producers and workers are very concentrated. As a result, some firms and workers might seek protection from the government. In this chapter, we will explain why most countries provide protection to some domestic industries. We begin by analyzing the political economy of protection. Protection from imports may not be in the country’s best interest, but it is in the interest of selected special interest groups. We also explain a country’s structure of protection by describing why the tariff is high for some goods and low for others. Next, we explain what is known as administered protection as it has become difficult for governments to explicitly raise tariffs. These bureaucratic mechanisms have been developed that allow tariffs to be increased in the presence of allegedly unfair foreign competition.The second part of the chapter presents the evolution of U.S. Trade Policy from 1792 to today. The nature and fundamental principles of U.S. trade law are much easier to understand if you know something about its historical roots. The last section of the chapter describes the evolution of the global trading system since World War II. The WTO is the product of nearly fifty years of international trade negotiations. This section discusses the history of those negotiations, the troubled state of world trade negotiations and the issues left to be negotiated. A final section covers the current challenges to the current arrangement of international trade relations.THE POLITICAL ECONOMY OF PROTECTIONISMGiven that a country as a whole gains from trade, one would expect free trade to dominate most countries’ international Trade Policy. Trade barriers cost the economy more in lost consumer surplus than is gained by producers and the government. However, as we saw in the last two chapters, firms and workers in import-competing industries gain from trade barriers. As we will see in what follows, the interaction between the gains from trade for the country and the gains from trade barriers for producers explains the existence of trade barriers. The result is that free trade is not most countries’ international Trade Policy.In economics, policy refers to an action or actions that a government implements. For example, governments regulate industries and firms in a number of areas. These regulations are designed to modify economic activity in some way. In the presence of market failures, government regulation can improve the welfare of society. Such regulations are commonly observed for pollution or in the food and pharmaceutical industries. Not all government regulation of industries and firms works to the benefit of society as a whole; some regulations favor one segment of society. Industries and firms that benefit from regulation favor it.1 For example, it is illegal for firms to conspire to fix or raise prices. However, firms can legally raise prices if the government regulates and enforces minimum prices for an industry’s product. In this case, firms in this industry may find it in their own interest to accept regulation if it can enhance their profitability.2
eBook - PDF- Gene M. Grossman, Elhanan Helpman(Authors)
- 2020(Publication Date)
- Princeton University Press(Publisher)
This reflects partly the fact that there are many channels through which residents convey their desires to policy makers, and these ways differ across issues and across con-cerned groups in society. Moreover, political institutions vary across coun-tries and they affect the ways in which influence works through the system. As a result, there are potentially many modes of interaction that require close scrutiny. Special-interest politics are prevalent, however, and economists need to understand these processes in order to better predict policy outcomes and to better design feasible policy options. My purpose is to describe in this chapter a number of political economy approaches that have been developed to explain trade poli-cies. I present these approaches in Section 2, using a unified framework that helps to identify the key differences among them. These compar-isons revolve around tariff formulas that are predicted by the political equilibria. A typical formula explains cross-sectoral variations in rates of POLITICS AND Trade Policy 175 protection as well as differences in average rates of protection across coun-tries. Section 3 then reviews a set of results that emerge from a new approach to the interaction of international economic relations with domestic politics. Importantly, there are two-way interactions in such systems, as pointed out by Putnam (1988). They link the formation of trade policies in the international arena with the activities of domestic special-interest groups. The use of a framework of this sort is essential for a proper analysis of a host of important problems, such as negotiations about tariff levels or the formation of free trade areas. Recent studies have developed suitable tools for this purpose, as I will argue in Section 3. 2 Political Economy Approaches I briefly describe in this section some of the leading political economy approaches to the formation of trade policies.
eBook - PDFNational Politics in a Global Economy
The Domestic Sources of U.S. Trade Policy
- Philip A. Mundo(Author)
- 1999(Publication Date)
- Georgetown University Press(Publisher)
2 Historical Overview of Trade Policy The national government has played a role in foreign trade since the founding of the republic. At stake from the very beginning was the fundamental question of the proper role of government in the econ-omy, of which Trade Policy was a part. Issues connected to this question included the nature of the economy—whether agrarian, commercial, or industrial; the distribution of the population—concen-trated in centers of commerce and industry or dispersed throughout the land on small farms; and the basic nature of government—limited or interventionist. The role the national government eventually played in Trade Policy reflects the ways national leaders ultimately resolved these questions. A second major aspect of Trade Policy in the United States is that it has always involved domestic political and economic considerations. From the 1780s through the early twentieth century, government officials raised and lowered tariffs mainly on the basis of domestic politics and economics. Through the middle and end of the twentieth century, other foreign policy considerations emerged, particularly as government officials recognized the effects trade policies had on inter-national affairs. The foreign policy component became more impor-tant in Trade Policy development, but domestic issues remained at its foundation. This chapter begins with the ideological split between Alexander Hamilton and Thomas Jefferson. Hamilton's and Jefferson's perspec-tives on the role of government in the economy established the pa-rameters of the debate and the policy that followed. Much of the National Politics in a Global Economy • 36 current debate on Trade Policy and on economic policy in general can still be understood in terms of the positions taken by Hamilton and Jefferson.
- Luther Tweeten(Author)
- 2019(Publication Date)
- Routledge(Publisher)
12. INTERNATIONAL TRADE POLICIES by Shida Henneberry and David Henneberryl An individual who traded with no one would have a difficult and perhaps brief existence. Nations as well as individuals gain from specialization and economies of size that attend trade. Policy analysis is useful to gauge monetary gains and losses from trade or from government interventions in trade. OBJECTIVES Objectives of this chapter are to: 1. analyze the conceptual and empirical basis for gains from trade, and 2. show costs of interventions in trade. This chapter explains the fundamental propositions underlying the international exchange of goods and services. The modem theory of international trade, the law of comparative advantage (often referred to as the foundation of international trade theory) and the welfare impacts of trade are also explained. Domestic resource cost (DRC) coefficients are sometimes used to measure comparative advantage. The domestic resource cost measures the cost in terms of domestic resources for each dollar saved for imported competing goods or each dollar earned for exports. A detailed explanation and method of calculation of DRCs is provided. Many governments have adopted policies to protect their producers and consumers. Several of the most common measures of protection on world markets are presented in this chapter. Consumer subsidy equivalent (CSE) and producer subsidy equivalent (PSE) are used to quantify the impact of government policies on consumers and producers, lThe authors would like to express their appreciation to Mr. Eric Kocher, who reviewed the manuscript International Trade Policies 323 respectively. The effective rate of protection (ERP) and nominal rate of protection (NRP) are utilized to explain the percentage change in domestic value added after the imposition of import taxes on imported inputs and the final product compared to taxes imposed only on final products.
- Richard Pomfret(Author)
- 2008(Publication Date)
- WSPC(Publisher)
Part II Policy This page intentionally left blank This page intentionally left blank Chapter 11 The Theory of Trade Policy Governments have long intervened in international trade. This chap-ter analyses the consequences of government restrictions on trade. Any restriction will create a wedge between the domestic and world prices that reduces the potential gains from trade. This wedge can be most simply represented as a tax on imports, a tariff , and histor-ically this has been the most important instrument of Trade Policy. The following two chapters will extend the analysis to consider other instruments of Trade Policy, all of which have the effect of introducing a wedge between domestic and world prices. Figure 11.1 illustrates the general equilibrium impact of an across-the-board tariff. As in Figure 4.7, the export good is on the vertical axis. With a tariff, the domestic price line DD is steeper than the world price line WW , i.e. the relative price of the import good is higher in domestic than in world markets. Producers respond 107 108 Lecture Notes on International Trade Theory and Policy O D D C 0 P 0 C 1 P 1 B A W X Y W D ′ D ′ W ′ Figure 11.1. General equilibrium effects of a tariff. to the new price signal by shifting the output mix towards more of the import-competing good and less of the export good, from P 0 to P 1 . From the new output point the economy can still trade along the world price line, although the value of the consumption bundle measured at world prices is now less ( OW instead of OW ). 1 Con-sumers, however, observe the domestic price ratio and will buy less of the import good than they would if they could trade at world prices. As long as the domestic price line is not as steep as the autarchy price line, there will be some trade, but it will be less than 1 GDP should be measured in world prices because they are the country’s oppor-tunity cost prices.
- Hamid Beladi, Kwan Choi, Sugata Marjit, Eden S. H. Yu, Hamid Beladi, Kwan Choi, Sugata Marjit, Eden S. H. Yu(Authors)
- 2008(Publication Date)
- Elsevier Science Ltd(Publisher)
SECTION VII International Trade Policy This page intentionally left blank CHAPTER 20 International Trade Agreements Wilfred J. Ethier Department of Economics, University of Pennsylvania, Philadelphia, PA 19104-6297, USA E-mail address: [email protected] Abstract Over the last 60 years, multilateral trade liberalization has reduced tariffs to historically low levels. The dominant theory of multilateral trade agreements, based solely on terms-of-trade externalities between national governments, is the conventional wisdom among international trade theorists. But it features two defects that render it inconsistent with reality. This chapter proposes a simple formulation of the political economy of protection that dispenses with terms-of-trade externalities, predicts the properties that empirical work has confirmed, and is free of the counterfactual implications of the dominant approach. The model is applied to trade agreements. Keywords: Trade agreements, the received theory, the terms-of-trade puzzle, the export-subsidy-transfer puzzle JEL classifications: F02, F13 A prominent twentieth-century accomplishment of international trade theory was its theory of international Trade Policy and trade agreements. Building on Harry Johnson’s classic paper ( Johnson, 1953/1954 ), scores of contributions developed and elaborated what can be called the ‘‘Received Theory.’’ The deservedly influential work of Bagwell and Staiger (1999, 2002) has triumphantly completed the research agenda implied by Johnson nearly half a century earlier. The multilateral trade liberalization of the previous six decades may well be the most successful deliberate exercise of economic policy in human history, so one could argue that understanding it is the most important task of applied economic theory. Another aspect 1 of the Received Theory, emphasizing political economy, emerged in the 1980s. Grossman and Helpman (1994, 1995, 1 See Hillman (1982, 1990) , Hillman et al.
eBook - PDF- Andrew Walter, Gautam Sen(Authors)
- 2008(Publication Date)
- Princeton University Press(Publisher)
Odell, “Understanding Interna-tional Trade Policies: An Emerging Synthesis,” World Politics 43:1, 1990, 139–67. 16 Collective action problems refer to the difficulty that large groups have in organizing to pursue common goals, primarily because of the incentive for any one actor to free ride on others who may be willing to bear the costs of such organization. For a classic account, see Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge: Harvard University Press, 1965). 17 Stephen P. Magee, “Endogenous Tariff Theory: A Survey,” in David C. Colander, ed., Neoclas-sical Political Economy, The Analysis of Rent-Seeking and DUP Activities (Cambridge: Ballinger, 1984), 41–55; Gene M. Grossman and Elhanan Helpman, Interest Groups and Trade Policy (Prince-ton, N.J.: Princeton University Press, 2002); Elhanan Helpman, “Politics and Trade Policy,” in Richard E. Baldwin et al., eds., Market Integration, Regionalism and the Global Economy (Cam-bridge: Cambridge University Press, 1999), 86–116. Trade Policy 69 policies. Most of these models assume that governments are interested in maximizing their chances of retaining political office. According to Magee, “tariffs are an equilibrating variable in political market, which balance opposing forces in redistributional battles.” 18 Political parties compete by adopting commitments on trade that maximize their chances of appealing to domestic interest groups. A variant of this ap-proach employs the attributes of the median voter rather than interest groups to determine policy outcomes. 19 When the economy imports labor-intensive goods, if the median voter has a higher endowment of labor per unit of capital than the economy as a whole, the political equilibrium is positive tariffs, the revenues of which are redistributed to the public in proportion to income. By contrast, Magee assumes that informational costs put interest groups in a better position than voters to identify policy options.
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