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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.
Free Trade
Tariffs
Subsidies
Import quotas
Voluntary export restraints
Local content requirements
Antidumping policies
Administrative policies
7 Instruments of Trade Policy
A tax levied on imports that effectively raises the cost of imported products relative to domestic products.
Tariff
... are levied as a fixed charge for each unit of a good imported.
Specific tariffs
... are levied as a proportion of the value of the imported good.
Ad valorem tariffs
A government payment to a domestic producer.
A Subsidy
A direct restriction on the quantity of some good that may be imported into a country.
Import Quota
A hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota
tariff rate quotas
are quotas on trade imposed by the exporting country, typically at the request of the importing country’s government
voluntary export restraints
The extra profit that producers make when supply is artificially limited by an import quota
quota rent
demands that some specific fraction of a good be produced domestically.
local content requirement
are bureaucratic rules that are designed to make it difficult for imports to enter a country.
Administrative trade polices
Selling goods in a foreign market below their costs of production, or as selling goods in a foreign market at below their “fair” market value.
Dumping
Designed to punish foreign firms that engage in dumping and protect domestic producers from “unfair” foreign competition
Antidumping polices (or countervailing duties)
2 types of arguments for government intervention:
political
economic
are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers) [government intervention]
Political arguments
are typically concerned with boosting the overall wealth of a nation (to the benefit of all, both producers and consumers) [government intervention]
Economic arguments
6 Political Arguments for Intervention
protecting jobs

protecting industries deemed
important for national security

protecting the human rights of individuals in exporting countries

protecting consumers from “dangerous” products

furthering the goals of foreign policy

retaliating to unfair foreign competition
j
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d
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2 acts ,that have been passed to protect American companies from such actions
the Helms-Burton Act and the D’Amato Act
suggests that an industry should be protected until it can develop and be viable and competitive internationally.
The infant industry argument
suggests that in cases where there may be important first mover advantages, governments can help firms from their countries attain these advantages.
Strategic trade policy
2 situations where restrictions on trade may be inappropriate:
retaliation and
politics.
The main issues on the table at the Doha Round include all of the following except

A) Anti-dumping policies
B) Protectionism in agriculture
C) Intellectual property rights
D) Infant industry protection
D) Infant industry protection
1) The rise of anti-dumping policies, 2) The high level of protectionism in agriculture
3) The lack of strong protection for intellectual property rights in many nations
4) Continued high tariffs on nonagricultural goods and services in many nations
4 issues on the current agenda of the WTO are..
Trade barriers raise the cost of
exporting products to a country
Voluntary export restraints (VERs) may limit a firm’s ability to
serve a country from locations outside that country
To conform to local content requirements, a firm may have to
locate more production activities in a given market than it would otherwise
International firms have an incentive to
..lobby for free trade, and keep protectionist pressures from causing them to have to change strategies
While there may be short run benefits to having governmental protection in some situations, in the long run these
can backfire and other governments can retaliate
1947-79: (3 Major Developments)
GATT, Trade Liberalization, and Economic Growth

After WWII, the U.S. and other nations realized the value of freer trade, and established the General Agreement on Tariffs and Trade (GATT)

The approach of GATT (a multilateral agreement to liberalize trade) was to gradually eliminate barriers to trade
1980-1993: (What are the Trends)
Protectionist Trends

During the 1980s and early 1990s, the world trading system was strained
Japan’s economic strength and huge trade surplus stressed what had been more equal trading patterns, and Japan’s perceived protectionist (neo-mercantilist) policies created intense political pressures in other countries
Persistent trade deficits by the U.S., the world’s largest economy, caused significant economic problems for some industries and political problems for the government
Many countries found that although limited by GATT from utilizing tariffs, there were many other more subtle forms of intervention that had the same effects and did not technically violate GATT (e.g. VERs)