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The Political Economy of Trade Policy (The Case for Free Trade (Free…
The Political Economy
of Trade Policy
The Case for Free Trade
Free trade will avoid the efficiency
losses associated with protection
Free trade produces
additional gains beyond the elimination of production and consumption distortions
Additional gain involves economies of scale
Free trade offers more opportunities for
learning and innovation
Rent-seeking
Political Argument for Free Trade
Arguments Against Free Trade
Domestic Market Failure Argument
Marginal social benefit
Theory of the second best
Terms of Trade Argument for a Tariff
Optimum tariff
Income Distribution and Trade Policy
Electoral Competition
Median voter
Modeling the Political Process
Collective Action
While it is in the interests of the group as a whole to press
for favorable policies, it is not in any individual’s interest to do so.
Which industries actually get protected from import competition?
Agriculture
Clothing
International Negotiations and Trade Policy
International negotiation
Help avoid trade war
Help mobilize support for
freer trade
International Trade Agreements
GATT
Binding tariffs
Prevention of nontariff
interventions in trade
8 trade rounds
The Uruguay Round
Established WTO
Cut tariff rates
Liberalized trade in agriculture and clothing.
The Doha Disappointment
Preferential Trading Agreements
Tariffs countries apply to each other’s products are lower than
the rates on the same goods coming from other countries
Free trade area
Customs union