part 2 i nternational t rade p olicy. chapter 6 histories of trade policies ——free trade vs...
TRANSCRIPT
Part 2
INTERNATIONAL TRADE POLICY
Chapter 6
Histories of Trade Policies——Free trade VS Protectionism
Chapter 6
International Trade Policies
FREE TRADE PROTECTIONISM
The Trade Policy pendulum
Free trade VS Protectionism
Chapter 6
Mercantilism (16th century)Trade surplus.Protectionism
“Laissez-Faire” (from early 19th century on)
Great Depression: Neo-MercantilismProtectionism up in the US,UK,France etc.
Trade Liberalisation after World War IIGATTWTO (Chapter 9)
New protectionism
The “Pendulum” of trade policy:Between Free Trade & Protectionism
Chapter 6Mercantilism: mid-16th
century
1. Definition2. Background3. Main ideas &Policies 4. Hume’s Criticisms to
Mercantilism
Chapter 6
Definition1. Between 1600 and 1800 most of
the states of western Europe were heavily influenced by a policy usually known as mercantilism.
2. Mercantilism is a collection of policies designed to keep the state prosperous by economic regulation.
Chapter 6
Background1. Increase in Commercial Activity due to
discovery of new trade routes 2. Emphasis on the quest for gold and silver
3. New social classes: world-wide merchants 4. Rise of Nation-States: Spain, Holland,
England, France
Chapter 6
Main Ideas Of Mercantilism
1. Nation’s Wealth = Country’s holdings of precious metals
2. Export is a gain (gain precious metals); import is a loss (lose precious metals)
3. Trade is a “Zero-sum Game”: one country’s gain is the loss of another country
Chapter 6
Policies Of Mercantilism1. Build up the power of a
nation-state: strong army, strong navy, and merchant marine
2. Maintain a positive trade balance: export > import:
a. Custom-free export; b. Reducing the import of luxury goods; c. Encouragement of imports with the
purpose of re-export.
Chapter 6David Hume ( 1711-177
6 )
One of the greatest philosophers in Western history, as well as an accomplished historian and economist.
deny the the inflow of gold specie could be sustainable——the Price-Specie-Flow Mechanism
Chapter 6Hume’s Criticisms to
Mercantilism
1. Increased exports leads to inflation and higher prices.
2. Increased imports lead to lower prices.
3. Result: Country A sells less because of high prices and Country B sells more because of lower prices.
4. In the long run, no one can keep a trade surplus.
Chapter 6“Laissez-Faire”——Free
trade
Intellectual arguments for free trade promoted by:
Adam Smith and David Ricardo Free trade as government
policy: Britain’s (1846) repeal of the Corn
Laws Britain continued a free trade
policy Rest of the world practiced
Mercantilism “Beggar-thy-neighbor” policies. It’s
no good to anyone.
Robert Peel stated:
'We must make this country a
cheap country for living'
Chapter 6Trade theories support Free Trad
e
1. Most trade theories argue for free trade
2. Even recent revisions of strategic trade theory suggest that free trade should be supported, if nothing else, simply out of fear of an all-out retaliatory trade war
Chapter 6
Great Depression U.S. stock market collapse Smoot-Hawley Tariff Act (1930)
U.S. had positive trade balance with world
Act imposes tariffs to protect U.S. firms
Response of other nations was to impose their own retaliatory barriers
U.S. exports tumbled deepening the Depression
Trade restrictions ultimately led to World War II
Great Depression: Neo -Mercantilism
Chapter 6
18_07
April
1930
2,739
1931
1932
1933
May
June
JulyJanuary
February
March
August
SeptemberNovember
December
October
1,839 992
1,206
Contracting Spiral of World Trade
Chapter 6New protectionism:
Disturbing Trends
Pressures for greater protectionism:
Japan’s economic success: World’s second largest economy &
World’s largest exporter Strong supporter for trade
protectionism The U.S.’s persistent trade deficit
Turn to protectionismEstablished by the Japanese government in 1958 for the comprehensive implementation of trade policyIn its first decades, JETRO promoted Japanese exports to meet the needs of the nation's postwar economy
Chapter 6Arguments for
Protectionism
ProtectEmployments
and Jobs
NationalSecurity Retaliation
ProtectConsumers
ProtectInfant Industry
DependencyTheory
FurtherForeign Policy
Objectives
Chapter 6
InfantIndustry
Infant industry is the oldest economic argument for government intervention,dating to 1792 and Alexander Hamilton. Protect developing country’s new industry from developed countries better established industries. Problem: When do infant industries grow up?
Alexander Hamilton
Secretary of the Treasury
1789-1795 His report on manufactures
began commercial and
industrial development in the new nation
Chapter 6
ProtectEmployments
and Jobs.Most common political argument.
Chapter 6
Chapter 6
Ross Perot -- during the 10/15/1992 Presidential DebateRoss Perot -- during the 10/15/1992 Presidential DebateRoss Perot -- during the 10/15/1992 Presidential DebateRoss Perot -- during the 10/15/1992 Presidential Debate
“NAFTA will cause a giant sucking sound as jobs go south”
Chapter 6
ProtectConsumers
Battleground for biotechnology such as hormone-treatedbeef and genetically altered crops.
Chapter 6
National Security
Often argued that steel, aerospace and electronics industries must be protected for security of nation. But argument is sometimes abused; the shoe industry has lobbied for protection on national security grounds.
Chapter 6National Security
Argument Mosquito netting will be needed in the
event of war in the tropics. We must produce the netting during the
war. Our equipment, ordinarily used to produce
lace, can be used to manufacture mosquito netting.
Our industry is threatened by imported lace.
Therefore, Congress should protect US lace makers with a tariff.
Chapter 6National Security
Argument If you assume all premises are true, the
conclusion does not follow. If production is vital, then a production subsidy would be more efficient. A tariff would make us poorer, not stronger.
Once revised to recommend a subsidy, the argument is probably not sound Modern wars are brief. A stockpile of netting
may be necessary, but not production capacity
Is the industry really threatened?
Chapter 6
RetaliationRisky strategy. If governmentfails to heed warnings and imposes its own higher tariffs, the result is higher tariffs allaround and a correspondingeconomic loss.
Chapter 6Retaliation
US Trade Sanctions
0
5
10
15
20
25
1993 95 97 99
NewSanctions
Afghanistan ItalyBurma LibyaCanada NigeriaChina N. KoreaCuba PakistanIndia Saudi ArabiaIran SudanIraq SyriaYugoslavia
A Partial List of TargetsA Partial List of TargetsA Partial List of TargetsA Partial List of Targets
Chapter 6
FurtherForeign Policy
Objectives
Used to build relations withother countries or to punish rogue states.
Chapter 6
Bush’s Foreign, as well as Trade, Policy?Bush’s Foreign, as well as Trade, Policy?Bush’s Foreign, as well as Trade, Policy?Bush’s Foreign, as well as Trade, Policy?
Chapter 6
Public Public reaction in reaction in the United the United
States meant States meant to “punish” to “punish” France -- for France -- for
not not supporting a supporting a preemptive preemptive
war in Iraq -- war in Iraq -- by not by not
purchasing purchasing French made French made
products products meant the meant the people who people who promoted it promoted it suffered the suffered the
most!most!
Public Public reaction in reaction in the United the United
States meant States meant to “punish” to “punish” France -- for France -- for
not not supporting a supporting a preemptive preemptive
war in Iraq -- war in Iraq -- by not by not
purchasing purchasing French made French made
products products meant the meant the people who people who promoted it promoted it suffered the suffered the
most!most!
Chapter 6
Chapter 6
so-called “rogue so-called “rogue states”states”
Policy is unilateral Policy is unilateral and easily defeated and easily defeated by other countries by other countries
ignoring itignoring it
so-called “rogue so-called “rogue states”states”
Policy is unilateral Policy is unilateral and easily defeated and easily defeated by other countries by other countries
ignoring itignoring it
Chapter 6
Chapter 6
Dependency theory Dependency theory was developed by the
Argentine economist Raul Prebish He believed that the international econo
mic system was divided into a "Center" and a "Periphery".
The destiny of “Periphery”
colonialism DistortedEconomic structure
Unbalanced growth IT Reinforcingthe bad development path
Chapter 6
Dependency theory Prebisch argued that with distorted national i
nstitutions and economic structures, Third World countries were defenseless to the distortionary development implied by trade-induced interaction with heavily-financed First World monopolistic capitalism.
As a result, Third World countries were being dragged into a state of "dependency" upon the First World, becoming the producers of raw material for First World manufacturing development - a "center-periphery" relationship.
Chapter 6
“Center” and “Periphery” “Center” composed of highly industrial
countries: U.S., U.S.S.R., Europe, etc. “Periphery” composed of less/under-
developed countries;These countries were dependent on the center countries.
Trade Pattern: The center countries export industrial
products which are highly flexible, while the Periphery countries’ exports are usually raw or semi-processed materials which are less flexible.
Chapter 6
Prebish’s Policy Suggestion Prebisch argued that protectionism iprotectionism i
n traden trade and import-substitution straimport-substitution strategiestegies were acceptable, indeed necessary if these countries were to enter a self-sustaining development path.
Prebisch's thesis was similar to modern Neo-Marxian theory