The Political Economy of International Trade
The Political Economy of International Trade
The Political Economy of International Trade
1. The infant industry argument - an industry • Until the Great Depression of the 1930s, most
should be protected until it can develop and be countries had some degree of protectionism
viable and competitive internationally
Smoot-Hawley tariff (1930)
accepted as a justification for
temporary trade restrictions under the • After WWII, the U.S. and other nations
WTO realized the value of freer trade
2. Strategic trade policy - in cases where there Japan’s perceived protectionist (neo-
may be important first mover advantages, mercantilist) policies created intense
governments can help firms from their political pressures in other countries
countries attain these advantages
persistent trade deficits by the U.S
– governments can help firms overcome
barriers to entry into industries where use of non-tariff barriers increased
foreign firms have an initial advantage • The Uruguay Round of GATT negotiations
began in 1986 focusing on
When Should Governments Avoid Using Trade Services and intellectual property
Barriers? - going beyond manufactured goods to address
• Paul Krugman argues that strategic trade trade issues related to services and intellectual
policies aimed at establishing domestic firms property, and agriculture
in a dominant position in a global industry are -
beggar-thy-neighbor policies that boost The World Trade Organization
national income at the expense of other
countries - It was hoped that enforcement mechanisms
would make the WTO a more effective
countries that attempt to use such policeman of the global trade rules
policies will probably provoke
retaliation • The WTO encompassed GATT along with two
sisters organizations
• Krugman argues that since special interest
groups can influence governments, strategic the General Agreement on Trade in
trade policy is almost certain to be captured by Services (GATS)
such groups who will distort it to their own
ends the Agreement on Trade Related
Aspects of Intellectual Property Rights
(TRIPS)