Government Involvement in Trade David J. Boggs, Ph.D. Eastern Illinois University

All Countries Seek To Influence Trade Economic rationale Prevent unemployment Protect infant or traditional industry Promote industrialization Improve position relative to other countries

All Countries Seek To Influence Trade Noneconomic rationale Maintain security or essential industries Deal with unfriendly countries Maintain sphere of influence Preserve national identity or culture Retaliation or strategic advantage Ethics (human rights, environment) Gain domestic political advantage

Instruments of Trade Policy Tariffs and quotas (and VER) Ad valorem Unitary or fixed Bureaucratic rules, regulations, standards, and specifications (safety, quality, technical) Domestic preferences or content requirement Subsidies Cash, tax break, or financing assistance Government equity position

Much-Protected Industries High-wage, high technology Defense Agriculture Airlines Financial services

Institutions and Actions GATT WTO Dumping and anti-dumping

Trade Restriction Issues Trade restrictions benefit a few domestic producers (a lot) but increase prices for many consumers (a little). Trade restrictions tend to favor particular industries but may cause harm to others. Trade restrictions result in retaliation, smuggling, and substitution.

International Trade Issues Import substitution versus export promotion Dumping Favorable treatment of LDCs Free trade zones Immigration and service industries GATT and the WTO