Government Involvement in Trade

1. Government Involvement in Trade David J. Boggs, Ph.D. Eastern Illinois University

2. Economic rationale Prevent unemployment Protect infant or traditional industry Promote industrialization Improve position relative to other countries All Countries Seek To Influence Trade

3. Noneconomic rationale Maintain security or essential industries Deal with unfriendly countries Maintain sphere of influence Preserve national identity or culture Retaliation or strategic advantage Ethics (human rights, environment) Gain domestic political advantage All Countries Seek To Influence Trade

4. Instruments of Trade Policy • Tariffs and quotas (and VER) • Ad valorem • Unitary or fixed • Bureaucratic rules, regulations, standards, and specifications (safety, quality, technical) • Domestic preferences or content requirement • Subsidies • Cash, tax break, or financing assistance • Government equity position

5. Much-Protected Industries • High-wage, high technology • Defense • Agriculture • Airlines • Financial services

6. Institutions and Actions • GATT • WTO • Dumping and anti-dumping

7. Trade Restriction Issues • Trade restrictions benefit a few domestic producers (a lot) but increase prices for many consumers (a little). • Trade restrictions tend to favor particular industries but may cause harm to others. • Trade restrictions result in retaliation, smuggling, and substitution.

8. International Trade Issues • Import substitution versus export promotion • Dumping • Favorable treatment of LDCs • Free trade zones • Immigration and service industries • GATT and the WTO