1. International Business Lecture No,25 By Dr.Shahzad Ansar

2. The Political Economy of International Trade

3. Theme of lecture
The political reality of free trade is that while nations are nominally committed to it, they intervene and take actions to protect the interests of politically important groups.
This lecture explores the political and economic reasons for intervention; to restrict imports and expand exports, but, more recently, for ‘social’ reasons.

4. Theme of lecture
The lecture describes the range of intervention instruments used by governments and considers the case for free trade in light of government actions.

5. Opening Case
BOVINE SAMATOTROPIN (BST) TREATED BEEF

6. The 7 Instruments of Trade Policy
Antidumping
Duties
Local
Content
Requirements
Tariffs
Voluntary
Exports
Restraints
Subsidies
Administrative
Policies
Import
Quotas

7. Tariffs Tariffs Specific Fixed charge per unit Ad Valorem Charge is
a proportion of the
goods value
 Oldest form of protection.
 Good for the Government.
 Good for producers.
 Leads to inefficiency.
 Bad for consumers.

8. Subsidies Government Low Interest payment to a Cash Grants Loans
domestic producer
Cash Grants
Tax Breaks
Low Interest
Loans
Equity
Participation

9. compete internationally.
Subsidies
Agriculture
1.Keeps inefficient
farmers in business.
2.Encourages production
of subsidized products.
3.Produce products grown
more cheaply elsewhere.
4.Reduces agriculture
trade.
Helps domestic
producers to
compete internationally.
Paid by taxing
individuals

10. Import Quotas and Voluntary Export Restraints
Direct restriction
on the quantity of a
good that can
be imported into
a country.
Import Quotas
Quota on trade imposed
by the exporting
country at the request
of the importing
country’s government.
VERs
Hurts
consumers
Raises domestic
prices on imported
goods (and possibly imported good)
producers
Helps
Quota
rent