2. chapter The Political Economy of International Trade McGraw-Hill/Irwin Global Business Today, 5e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. 6

3. 6 - 3 Chapter 6: The Political Economy of International Trade INTRODUCTION Free trade refers to a situation where a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country. While many nations are nominally committed to free trade, they tend to intervene in international trade to protect the interests of politically important groups.

4. 6 - 4 Chapter 6: The Political Economy of International Trade IINSTRUMENTS OF TRADE POLICY There are seven main instruments of trade policy: Tariffs Subsides Import Quotas Voluntary Export Restraints Local Content Requirements Administrative Polices Antidumping Policies

5. 6 - 5 Chapter 6: The Political Economy of International Trade THE CASE FOR GOVERNMENT INTERVENTION There are two types of arguments for government intervention: political and economic. Political arguments are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers) Economic arguments are typically concerned with boosting the overall wealth of a nation (to the benefit of all, both producers and consumers)

6. 6 - 6 Chapter 6: The Political Economy of International Trade Political Arguments for Intervention Economic Arguments for Intervention

7. 6 - 7 Chapter 6: The Political Economy of International Trade THE REVISED CASE FOR FREE TRADE Two situations where restrictions on trade may be inappropriate: retaliation and politics. Retaliation and Trade War Domestic Politics

8. 6 - 8 Chapter 6: The Political Economy of International Trade DEVELOPMENT OF THE WORLD TRADING SYSTEM How has the current world trade system emerged?

9. 6 - 9 Chapter 6: The Political Economy of International Trade From Smith to the Great Depression 1947-1979: GATT, Trade Liberalization, and Economic Growth 1980-1993: Protectionist Trends The Uruguay Round and the World Trade Organization WTO: Experience to Date The Future of the WTO: Unresolved Issues and the Doha Round

10. 6 - 10 Chapter 6: The Political Economy of International Trade IMPLICATIONS FOR MANAGERS How are companies affected by trade barriers? Trade Barriers and Firm Strategy Policy Implications