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Rationales for Trade intervention p262-266 - Coggle Diagram
Rationales for Trade intervention p262-266
Issues that have shaped the debate on appropriate trade policies
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1) Whether the national Government should protect country's domestic firms through tariffs on imports or constructing other barriers on imports
2) Whether a government should step in & help domestic firms increase their foreign sales through export subsidies, government-to-government negotiations & guaranteed loan programmes
Fair trade vs free trade
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free trade = :question:
Government plays minimal influence on export and import decisions of private firms and individuals
Fair trade = :question:
Government actively intervenes in import and exports of individuals
Why:question:
So domestic firms receive an equitable share of foreign market
Meaning, imports are controlled to minimise job losses & loss of market share
The 'arguments' :question:
National defense argument :star:
Holds that a country must be self-sufficient in critical raw materials, machinery and technology or else be vulnerable to foreign threats
IE: USA kept shipbuilding skills there having developed numerous programmes to support its domestic ship building industry
Government use this to protect certain industries from foreign competitors
The infant industry argument :star:
Protects young firms from experienced foreign competitors
Created by Alex Hamilton
Temporary situation until the firm gains market maturity
Maintenance of existing jobs :star:
Well-established firms workers in countries where the economy is more advanced are threatened by imports from low-wage economies
Workers petition for relief against foreign competitors
Aim to get tariffs, Non-tariff barriers etc set up
Strategic Trade Theory :star:
Developed to provide theoretical just for government intervention to support firms through protection
Old economic theory of perfect competition assume consumers lose out through Government intervention
This is incorrect as markets are not perfect
The strategic trade theory makes different assumptions on market environment
National government can make its country better off if it adopts trade policies that improve the competitiveness of its domestic firms in such oligopolistic industries
Helps improve pay-offs for domestic firms
Subsidies allow firms to invest in new sites, R&D etc
Keeps foreign firm out of the market
If foreign firms country does the same thing, it neutralises the benefits for domestic firms