1. International Business Lecture No,28 By Dr.Shahzad Ansar

2. Protect Human Rights Basis for the use of “Most
Favored Nation” status to
persuade China to change its
positions on human rights.

3. Economic Arguments for Intervention
 Infant industry is the oldest economic
argument for government intervention,
dating to 1792 and Alexander Hamilton.
 Protect developing country’s new industry
from developed countries better
established industries. Recognized by
GATT.
 Strategic trade policy can help a
firm gain ‘first mover’ advantages
or overcome barriers created by a
different (foreign) first mover.
Infant
Industry
Strategic
Trade
Policy

4. Revised Case for Free Trade
Paul Krugman, MIT economist, argues that strategic
trade policies can lead to trade wars. The best way to
handle disputes is to work to establish rules that minimize
trade-distorting subsidies - a function of the World
Trade Organization.

5. Revised Case for Free Trade
He also argues that government intervention usually favors
special interest groups that distort the subsidy to their
own ends.
Therefore, “a blanket policy of free trade, with exceptions
granted only under extreme pressure … may be the best
policy that the country is likely to get.”

6. Development of the World Trading System
Intellectual arguments for free trade:
Adam Smith and David Ricardo.
Free trade as government policy:
Britain’s (1846) repeal of the Corn Laws.
Britain continued free trade policy.
Fear of trade war.