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Global Financial Crisis

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Tobi Romberg

on 25 November 2013

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Transcript of Global Financial Crisis

The Global Financial
Crisis & Protectionism
Political Arguments for Protectionism:

Retaliation against foreign competitors who condone:
Low-cost labour
Extremely low standards to lower their prices
Retaliation against other nations who have put trade barriers against them
Arguments against Protectionism

Smith‘s theory of absolute advantage & Ricardo‘s theory of comparative advantage
Deadweight loss in welfare to society
consumers pay more, firms incur higher costs, choice is limited
A country’s firms become less competitive in global market
Negative effect on global economy --> trade distortion & inefficient allocation of production among countries
Strategic trade policy unworkable in practice
Trade wars
Influence of special interest groups --> support of inefficient industries
Car Scrappage Schemes


A government programme that gives drivers a financial incentive to replace old cars with newer, more fuel-efficient ones

Aim: boost production and demand
Madeleine Guenther

Nadine Janecke
Yuhong Mei

Tobias Manner-Romberg
BEQM607 International Economics

Economic Effects on German Automotive Industry

Rise in car sales 2009, followed by a down turn in 2010 --> consumers had preponed their car purchase
Real profiteers were foreign producers
Decline in sales of second-hand cars
German car manufactures realize most of their revenues abroad --> did not help boosting exports, since domestic subsidy
Distortions of Trade

Distortions were significant in Germany
Impacts on international trade less profound
Did not help German car manufacturers in gaining comparative advantage, economies of scale or first mover advantages

Environmental Premium in Germany

World`s largest scrappage scheme with a government budget of €5bn
Jan – Sep 2009
Car owners with a car older than nine years, buying a new or a year old automobile were entitled for a bonus of €2,500
Economic Arguments for Protectionism:

Infant Industry Argument
Strategic Trade Policy

Full transcript