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Chapter 9 (1).pdf

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Chapter 9 Formulation of National Trade Policiestwo principle issues have shaped the debate on appropriate trade policies1Whether a national government should intervene to protect the countrys domestic rms by taxing foreign goods entering the domestic market or constructing other barriers against importss domestic rms 2Whether a national government should directly help the countryincrease their foreign sales through export subsides governmenttogovernment negotiations and guaranteed loan programsFree trade implies that the national government exerts minimal inuence on the exporting and importing decisions of the private rms and individualsFair trade sometimes called managed trade suggests that the national government should actively intervene to ensure that domestic rms exports receive an equitable share of foreign markets and that imports are controlled to minimize losses of domestic jobs and market share in specic industries some fair traders also argue that the government should ensure a level playing eld on which foreign and domestic rm can compete on equal terms policies individual companies adopt affect the size and protability of foreign markets and investmentsas well as the degree to which rms are threatened by foreign imports in their domestic marketsdebate also affects consumers in every country inuencing the prices they pay for foreign goodsINDUSTRY LEVEL ARGUMENTSthe argument for free trade follows Adam Smiths analysis voluntary exchange makes both parties to the transaction better off and allocates resources to their highest valued usewelfare of a country and its citizens is best promoted by allowing selfinterested individuals regardless of where they reside to exchange goods services and assets as they see twe review the primary arguments against free tradeNational Defense Argumentreason to support government protection of specic industriesholds that a country must be selfsufcient in critical raw materials machinery and technology or else be vulnerable to foreign threatsappeals to the general public which is concerned that its country will be pushed around by other countries that control critical resourcesspecial interest groups used this politically appealing argument to protect their industries from foreign competitionInfant Industry argumentrst US secretary of treasury ALexander Hamilton articulated this pointnewly developed infant industries possess comparative advantage that will ultimately allowit to thrive in international markets
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