IB 3101 Lecture Notes - Lecture 6: Infant Industry Argument, Protectionism, Paul Krugman
19 Mar 2017
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Week 6- chapter 7- political economy of trade. Political reality of international trade: many nations only nominally commit to free trade, no one uses pure free trade, use trade barriers to restrict foreign imports coming to country. Our trade: problem (2) usually, the only real (cid:498)unfair(cid:499) competition are just firms you can"t compete with not firms that are trading unfairly! partners cannot predict when these will be imposed (in contrast to tariffs) Why do gov"ts intervene in markets: political arguments, economic arguments. Can cause trade war: strategic trade policy, gov"t can help firms, attain first mover advantage, overcome entry barriers into industries. Argument against strategic trade policy: paul krugman, beggar-thy-neighbor policies, provoke retaliation, captured by special interest groups. Border adjustment tax: heavily tax imports, no tax on exports, subsidized, this will raise revenue for usa, main reason, ensure locally manufactured goods and also imported goods are subjected to same measures. Idea: 20% tax on imports, buy approx.
