广东省省级精品课程《国际贸易》 Chapter 7 International Trade Policy 广东外语外贸大学国际经贸学院 卢立岩 副教授 School of International Trade and Economics, Guangdong University of Foreign Studies

Chapter 7 International Trade Policy 7.1 International Trade Policy Under the international trade system, governments would adopt different trade policies to insure their countries get the most in the world market. These trade policies include two kinds: Free Trade Policy and Restrictive Trade Policy

 Free Trade Policy. Under free trade policy, the government would not intervene the trade. The country will trade freely with other countries according to their comparative advantages. It is not common situation in the real world.  Restrictive Trade Policy. Under restrictive trade policy, government would take number of different actions, including taxes on some international transactions, subsidies for other transactions, legal limits on the value or volume of particular imports, and many other measures to protect the trade.

7.2 Theories supporting free trade  Theories supporting free trade including:  1. Absolute Advantage — comes from Adam Smith  2. Comparative Advantage — comes from David Ricardo  3. Factor Endowment Theory — comes from Heckscher and Ohlin

 All above theories support free trade. They thought free trade would bring the most benefit to all the countries take part in international trade.

7.3 Arguments for protectionism  Fallacious argument 1 – “ Trade restrictions are needed to protect domestic labor against cheap foreign labor. ”  The cost of labor is only partially determined by wages.  Greater productivity may more than offset the advantages offered by low foreign wages.

 Fallacious argument 2 – “ Scientific tariffs are needed so that domestic producers can compete. ”  A scientific tariff raises the price of imports to the domestic price.  This does increase domestic production but it also eliminates imports.

 Questionable argument 1 – “ Trade restrictions are needed to reduce domestic unemployment. ”reduce domestic unemployment  Trade restrictions may reduce imports and lead to an expansion in the economy which will lower unemployment in the short-run.  This conclusion hinges on there being no retaliation by foreign nations.

 Questionable argument 2 – “ Trade restrictions are needed to cure a balance of payments deficit. ”  As with the previous argument, trade restrictions may have this effect but the conclusion hinges on a lack of retaliation by other countries.

 A qualified argument – “ Infant industries need to be protected so that they can become established industries. ” Infant industries  A new industry likely does not have the skills and experience to be a successful competitor in the international market place.  To gain these skills the firm must be protected from competition for a limited period of time.

 Qualifications The protection must be of limited duration. A production subsidy is the lowest cost tool for achieving this end.