International

Business
Lecture No,25
By
Dr.Shahzad Ansar

 The Political Economy

of International Trade

Theme of lecture
The political reality of free trade is that
while nations are nominally committed
to it, they intervene and take actions to
protect the interests of politically
important groups.
This lecture explores the political and
economic reasons for intervention; to
restrict imports and expand exports,
but, more recently, for social reasons.

Theme of lecture
The lecture describes the range of
intervention instruments used by
governments and considers the
case for free trade in light of
government actions.

Opening Case

BOVINE
SAMATOTROPIN (BST)
TREATED BEEF

The 7 Instruments of Trade

Policy
Tariffs Subsidies Local

Content
Voluntary
RequirementsAntidumping
Exports
Duties
Restraints

ImportAdministrative
Policies
Quotas

Tariffs
Specific
Fixed charge
per unit

Tariffs
Oldest form of protection.
Good for the Government.
Good for producers.
Leads to inefficiency.
Bad for consumers.

Ad Valorem
Charge is
a proportion of the
goods value

Subsidies
Tax Breaks

Government
Low Interest
Cash Grants
payment to a
Loans
domestic producer
Government
Equity
Participation

Subsidies
Paid by taxing
individuals
Agriculture
1.Keeps inefficient
farmers in business.
2.Encourages production
of subsidized products.
3.Produce products grown
more cheaply elsewhere.
4.Reduces agriculture
trade.

Helps domestic
producers to
compete internationally.

Import Quotas and

Voluntary Export Restraints
Import Quotas

Quota
rent

VERs

Quota on trade imposed

by the exporting
country at the request
of the importing
countrys government.

Raises domestic
prices on
imported
goods (and
possibly imported
good)

Helps
producers

Direct restriction
on the quantity of a
good that can
be imported into
a country.

Hurts
consumers