Chapter 7

The Political Economy of International Trade

 Political Arguments For Government
Intervention
►Protecting jobs
►US tariffs on foreign steel. Chinese currency manipulation and subsidies.

►Protecting industries deemed important for national security

►E.g. defense related industries (aerospace, semiconductor, advanced electronics), 5G deployment in the US

►Retaliating to unfair foreign competition

►US threat of imposing 100% tariffs on Chinese products due to copyright infringements

►Protecting consumers from “dangerous” products

►Ban on beef from USA by Japan and South Korea (2003)
 Political Arguments For Government
Intervention

►Furthering the goals of foreign policy

►Preferential trade terms to build strong relations
►Trade policy to punish rogue states. Example: Cuba, Libya

►Protecting human rights

►US government trade sanctions against Myanmar due to its poor human
rights practices Former US Secretary of State Rex
Tillerson (L) and Myanmar's State
Counselor Aung San Suu
Source: www.rfa.org

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 Economic Arguments For Intervention
The Infant Industry Argument
The infant industry argument suggests that an industry should be protected until it can develop, be
viable and compete internationally
Example: Brazilian Automobile Industry
 Economic Arguments For Intervention
Strategic Trade Policy
►Strategic trade policy suggests that in cases where there may be important first mover
advantages, governments can help firms from their countries attain these advantages

►Example: US government gave substantial R&D grant to Boeing in the 1950s and 1960s. Government of Great Britain
did the same for Airbus.
► Japanese government provided huge amount of subsidies for R&D to further develop the LCD technology

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GATT & WTO
GATT: The General Agreement on Tariffs and Trade (GATT) was a
multilateral agreement regulating international trade. GATT was signed
by 23 nations in Geneva on October 30, 1947 and took effect on January
1, 1948. It lasted until the signature by 123 nations in Marrakesh on April
14, 1994 of the Uruguay Round Agreements, which established the
World Trade Organization (WTO) on January 1, 1995.
The World Trade Organization is responsible for policing the world
trading system, and making sure that members adhere to trade treaties.
Bangladesh and Trade Policy: European
Perspective

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 WTO and Its Objectives
Since its establishment, the WTO has emerged as an effective advocate and facilitator of future trade deals,
particularly in such areas as services

The current agenda of the WTO focuses on:

► Minimize the rise of anti-dumping policies
►The WTO is encouraging members to strengthen the regulations governing the imposition of antidumping
duties
► Reduce the high level of protectionism in agriculture
►The WTO is concerned with the high level of tariffs and subsidies in the agricultural sector of many
economies:
•The US charges 10.3%, Canada 21.2%, EU 15.9%, Japan 18.6% as tariffs on agricultural products
•Subsidies account for 21% of the cost of agricultural production in the US, 21% in Canada, 35% in the EU and
59% in Japan

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WTO and Its Objectives
► Stronger enforcement of intellectual property rights
► TRIPS (Trade-Related Aspects of Intellectual Property Rights) obliges WTO members to
grant and enforce patents lasting at least 20 years and copyrights lasting 50 years

► Lowering the high tariffs on non-agricultural goods and services in many nations
► The WTO would like to bring down tariff rates on nonagricultural goods and services, and
reduce the scope for the selective use of high tariff rates

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