subsides

TOPIC:

CHAPTER7:GovernmentalInfluenceon

Trade

Mentor:ProfessorJerry

Class:class1ofInternationalEconomicsandTrade

Name:高朝倩（GAOZHAOQIAN）

Number:2

OBJECTIVES

Torealizetherationalesforgovernmentalpoliciesthatenhanceand

restricttrade

Tointerprettheeffectsofpressuregroupsontradepolicies

Tounderstandthecomparisonofprotectionistrationalesudin

high-incomecountrieswiththouinlow-incomecountries’economies

Tocomprehendthepotentialandactualeffectsofgovernmental

interventiononthefreeflowoftrade

Tounderstandthemajormeansbywhichtradeisrestrictedandregulated

Tograspthebusinessuncertaintiesandbusinessopportunitiescreated

bygovernmentaltradepolicies

CHAPTEROVERVIEW

Governmentalinterventionintrademaybeclassifiedaithereconomic

ornon-economic,’sbeginbyprofilingleading

economicrationales.

Whenfacedwithpossiblejobloss,affectedworkersektoinfluence

eworkersinthePhilippines

protestingtheimportationoffishfromNorway.

Inrespontophysicalandsocietalinfluences,governmentnact

measuresthatenhanceorrestrictcompanies’abilitiesandneedsto

ieslikewiinfluencegovernmentsto

adopttradepoliciesthatbenefitthem.

CASE:TEXTILEANDCLOTHINGTRADE

I:IMPORTMARKETSHARESOFCLOTHINGINTHEUNITED

STATESBEFOREANDAFTERTHEMFA

ChinaandIndiaareprojectedtobetheonlytwocountriesgainingimport

marketshareintheUnitedStateswiththeeliminationoftheMultifiber

Arrangement.

PublicityoverthepossibleUnitedStatesandEuropeanjoblosswasduly

notedbyChina,whichfearedstringent

restricti

错误!etitive

ultChina

announceditwouldplaceexporttariffsonveralclothing

rybonds,whichtheUnitedStatesneededtollto

foreignersbecauofitsbudgetdeficit.

All

countr

错误!etitive

environmentiesektoinfluencetrade,andeachhaconomic,social,and

politicalobjectives;conflictingobjectives;interestgroups

II：CONFLICTINGRESULTSOFTRADEPOLICIES

Physicalandsocialinfluencesonprotectionismandcompanies’

comp错误!etitiveenvironment.

Inresponestophysicalandsocialinfluences,governmentnactmeasures

thatenhanceorrestrectcompanies'easures

affectcompetitionbecautheyimproveorhindercompanies'abilitiesand

ieslikewiinfluencegovernment

toadopttradepoliciesthatbenefitthem.

III:ECONOMICRATIONALESFORGOVERNMENTALINTERVENTION

AGovernmentalinterventionintrademaybeclassifiedaithereconomic

ornon-economic,'sbeginbyproflilingleading

economicrationales.

Theunemployedcanformaneffectivepressuregroupforimport

restrictions.

Importrestrictionstocreatedomesticemployment

●Mayleadtoretaliationbyothercountries

●Arelesslikelyretaliaatedeffectivelybysmalleconomies

●Arelesslikelytobemetwithretaliationifimplementedbysmall

economies

●Maydecreaexportjobsbecauofpriceincreasforcomponents

●Maydecreaexportjobsbecauoflowerincomesabroad

BPationalesforgovernmentintreventionintrade

ECONOMICRATIONALES

●Preventunemployment

●Protectinfantindustries

●Promoteindustrialization

●Improvepositioncomparedtoothercountries

NONECONONICRATIONALES

●Maintainesntialindustries

●Dealwithubfriendlycountries

●Maintainorextendspheresofinfluence

●Prervenationalidentity

IV:MaintenanceofEsntialIndustries

Governmentsapplytraderestrictionstoprotectesntialdomestic

industriesduringpeacetimesothatacountryisnotdependentonforeign

calledtheesntial-industry

argument.

s:

Atariffisthemostcommontypeoftradecontrolandisataxthat

,governments

chargeatariffonagoodwhenitcrossanofficialboundary--whether

itbethatofanation,sayMexico,oragroupofnations,liketheEU,that

haveagreedtoimpoacommontariffongoodnteringtheirblock.

sValuation

Thetemptationexistsforexportersandimporterstodeclarealowprice

oninvoicesinordertopayaloweradvaloremtariff.

Loans

ecipient

isrequiredtospendthefundsinthedonorcountry,whichisknownas

tiedaidortiedloans,someproductscancompeteabroadthatmight

otherwibenoncompetitive.

es

Countriessometimesmakedirectpaymentstodomesticcompaniesto

compensatethemforlossincurredfromllingabroad,suchasU.S.

Subsidestocottonexports.

irectPriceQuantityControls

Countriesuothermeanstoaffectprices,includingspecial

fees,requirementsthatcustomsdepositsbeplacedinadvanceofshipment,

andminimumpricelevelsatwhichgoodscanbesoldaftertheyhavecustoms

clearance.

V:InfantIndustryArgument

In1792．AlexanderHamiltonprentedwhathasbecomeoneoftheoldest

argumentsforprotectionism．Theinfant-industryargumentholdsthata

governmentshouldshieldanemergingindustryfromforeigncompetitionby

guaranteeingitalargeshareofthedomesticmarketuntilitisableto

competeonitsown．

VI:EconomicRelationshipswithOtherCountries

Countriesmonifortheirabsoluteeconomicwelfareaswellastrackhow

theirperformancecomparestoothercountries．Governmentswillimpo

traderestrictionstoimprovetheirrelativetradepositions．Theymight

buylessfromothercountriesthanthocountriesbuyfromthem．Theymight

trytochargehigherexportpriceswhilekeepingimportprices10w—

-thoughnotsolowastopenalizetheirdomesticproducers．Amongthemany

motivations，fourstandout．

●Balance-of—PaymentsAdjustments

Atradedeficitcreatesprob1emsfornationswithlowforeignexchange

rerves—thefundsthathelpanationtofinancethepurchaofforeign

goodsandtomaintaintheirexporttrade．Governmentscanimprovetheir

balanceofpaymentsbyimprovingtheirbalanceoftrade．

●ComparableAccessor“Fairness’’

Economictheorysupportsthisidea，reasoningthatproducersoperating

inindustrieswhereincreadproductionleadstosteep

costdecreas(thatistosaytherearesubstantialcostdecreasthrough

economiesofscalebutwhichlackequalaccesstoacompetitor’smarket

willstruggletogainenoughsalestobecost-competitive．

●restrictionsasabargainingtool

Basically,theyneedtobeimportanttotheinfluentialpartiesin

theothercountry．Believableimpliesthatthereareeitheralternative

sourcestobuythesameproductorthatconsumersarewillingtodowithout

it．Forinstance，intraderetaliationsbetweentheUnitedStatesandthe

EU，theEUhasthreatenedtoimpotraderestrictionsonU．S．一grown

soybearl8whenBrazilhadsurplusproduction．

●Price-controlobjectives

Theycanthenlinersupplysoconsumersmustpayahigherprice．Thisprice

oftenencouragessmuggling,suchasofemeraldsanddiamonds．Itpolicy

mayalsoencourageothercountriestodeveloptechnologythatwillprovide

eithersubstituteproducts，suchassyntheticrubberinplaceofnatural

rubber，ordifferentwaysofproducingthesameproduct,suchasthe

cultivationofsturgeonstoproducecaviarintheUnitedStatesin

npricesforcaviarfromwildsturgeon．

VII:NONECONOMICRATIONALESFORGOVERNMENT

INTERVENTION

Economicrationaleshelpexplainmanygovernmentactionsontrade．However，

governmentssometimesunoneconomicrationales，suchasthefollowing：

●Maintenanceofesntialindustries(especiallydefen)

●Preventionofshipmentstounfriendlycountries

●Maintenanceorextensionofspheresofinfluence

●Protectingactivitiesthathelpprervethenationalidentity

VIII:PreventionofShipmentsto“Unfriendly"Countries

Groupsconcernedaboutcurityoftenunationaldefenargumentsto

preventtheexport，eventofriendlycountries，ofstrategicgoodsthat

mightfallintothehandsofpotentialenemiesorthatmightbeinshort

supplydomestically．Forexample，theUnitedStatespreventedexportsof

data-encryptiontechnology(data—scramblinghardwareandsoftware)until

agroupofU．S．high-techcompaniesalliedthemlveswithprivacy

advocacygroupstoconvincetheU．S．governmenttorelaxtheexport

curbs．Now,U．S．companyexportanyencryptionproducttothemembers

oftheEuropeanUnionandotherEuropeanandPacificRimallieswithout

firstgettingpermission．22Exportconstraintsmaybevalidifthe

exporfingcountryassumestherewillbenoretaliationthatpreventsit

fromcuringevenmoreesntialgoodsfromthepotentialimporting

country．Eventhen，theimportingcountrymayfindalternativesupply

sourcesordevelopaproductioncapabilityofitsown．Inthis

situation,thecountrylimitingexportsistheeconomiclor．Thus，the

uoftradesanctionshasbeencontroversial．asindicatedinthe

Point--Counterpointbox．