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Trade Policies & Tools

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Krisztina E. Lengyel Almos

on 27 August 2018

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Transcript of Trade Policies & Tools

1) protectionist
protection of domestic
market and/or market participants
- protecting jobs & industries
- economic nationalism
- infant industry

- strong lobbying from an industry
- to ward off predatory practices

Government Trade Policies can be ....
2) economic liberalism
Tools to protect local markets:
1. Tariffs
(or duty: taxing the imported goods)
Ad Valorem Tariff (% of the value imported)
Specific Tariff ( a fixed charge imposed per good imported)

2. Non-Tariff barriers:

1. Quotas (limiting the # of goods, extreme: prohibition)
2. Subsidies (help to local industry: tax breaks, loans, cash, price fixing)
3. Restrictions & Regulations ( environmental, labor, local content requirement, etc.)
4. Currency policies (fixing local currency)
5. Anti-Dumping Policies -> retaliation -> countervailing duties

- to obtain scarce resources
- to obtain comparative advantage
- to motivate growth
- to promote national industries
- to increase the wealth of its citizens
- to promote the benefits of free market

"Most political intrusions into economic transactions are market imperfections" -
Interference with Trade Policies
International Relations, Goldstein & Pevehouse, p. 288.
- clear
political or ideological
difference (e.g. capitalism vs. socialism)
- political
can overrule trade policies
- military ambitions
national security
(e.g. food, oil, gas, water) -> strategic trade policy
- monopoly in a certain market/ goods
- corruption
note: extreme protectionism of a country: autarky
(unfairly capturing near-monopolies, e.g. by dumping strategies - by artificially low prices, even below production cost)
- Voluntary Export Restriction - self-imposed quota on exports, for pol. reasons/pressure by importing country´s gov´t.)
Tariff Rate Quota
-hybrid btw quota & tariff - depending how much is imported, tariff changes
US: Helms-Burton Act, 1996, against Cuba
US: D´Amato Act, 1996, against Iran & Libya
EU & US: on Russia, for Ukraine´s invasion, 2014
- protect domestic market during crisis
- US: Smoot-Hawley Act 1930, high tariff barrier during the Great Depression
-> letting free market forces playing out nationally and internationally
(-> profit realization, economies of scale)
Political vs. Economic Liberalism and Conservatism
governments interfere with trade from time to time, for several reasons...
tendencies change from government to government, political & economic freedom are subject to each government own policies!
Full transcript