POL224Y1 Lecture Notes - Lecture 4: World Trade Organization, Peterloo Massacre, Offshoring
Document Summary
Jan 29: trade policies & capital controls. Preferential tariff = giving a trade partner a lower, more favourable tariff. Comparative advantage goes to the country who has lowest opportunity cost: Five arguments about free trade: infant industry argument. Mercantilism says that trade barriers/protectionism is necessary in order to develop new industries in your country. Adam smith would say a successful industry will rise despite free trade if there"s a real advantage to that industry, it should develop by itself w/out protectionism: wage differential argument. If there"s a wage gap between two trading countries, you need tariffs otherwise the low-wage country will be exploited. Those low-wage countries will be worse off if they raise their wage. No one will trade with them then and their higher wage will just be offset by a devalued currency: keynes" argument. When currency exchange rate was volatile in 30s (bad for domestic economy), he proposed protectionism as a solution.
