1. Topic: The political economy of
International Trade
Instructor: Dr. Chu Thi Kim Loan
Students: Nguyen Thi Hong (543579)
Bui Thi Hue (540660)
Nguyen Thi Hue (551516)

2. 

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Discuss the various policy instruments that
governments use to restrict imports and promote
export
Understand why some government intervene in
international trade
To review the political and economic motives that
government have intervention

3. I. Introduction
II. Instrument of trade policy
III. The case for government
intervention
IV. Implications for business
and example

4. 
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
Free trade refers to a situations where a government does
not attempt to restrict what its citizens can buy from
another country or what they can sell to another country
Trade policy is a collection of rules and regulation which
pertain to trade
Purpose of trade policy: to help a nation's international
trade run more smoothly, by setting clear standards and
goals which can be understood by potential trading
partners

5. Tariffs
Subsidies
Import quotas and
voluntary export
restraints
Local content
requirements
Administrative
policies
Antidumping
policies

6. A tariff is a tax levied on imports
There are two basic ways in which
tariffs may be levied:
1.
Specific tariffs:
Are levied as a fixed charge for each unit of a good imported.
2.
Ad volorem Tariffs:
Are levied as a proportion of the value of the imported goods.

A tariff raises the cost f imported products. In most causes,
tariffs are put in place to protect domestic producers from
foreign competition.
Ex: When goods are brought into the Netherlands from a country
outside the European Union (EU), Customs charges tax on
them. The amount of tax depends on the country of origin and
the kind of product.

.

7. 
Gainers:
1. The government gains, because the tariff increases
govt. revenues.
2. Domestic producers gain because the tariff affords
them some protection against foreign-competitors by
increasing the cost of imported foreign goods.
Sufferers:
Consumers suffer, because they must pay more for certain
imports


8. 
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A subsidy is a government payment to a domestic producer.
Subsidies take many forms including cash grants, lowinterest, tax breaks and government equity participation in
domestic and government producers in two ways:
1. They help producers compete against foreign imports and
2. Subsidies help them gain export markets.
The main gains from subsidies accrue to domestic producers,
whose international competitiveness is increased as a result
of them.

9. 
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An import quotas: Direct restriction on the quantity of
some good that may be imported into a country.
An import quotas: Limitations on the quantity of goods
that can be imported into the country during a specified
period of time.
An import quota is typically set below the free trade
level of imports - A binding quota.
If a quota is set at or above the free trade level of
imports – A non-binding quota.

10. 
•
•
Two basic types of quotas:
Absolute quotas limit the quantity of imports to a
specified level during a specified period of time.
Tariff-rate quotas allow a specified quantity of goods to
be imported at a reduced tariff rate during the specified
quota period.

11. 
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VER: quotas on trade imposed by the exporting country, typically
at the request of the importing country‟s government.
Typically VERs arise when the import-competing industries seek
protection from a surge of imports from particular exporting
countries.
VERs are then offered by the exporter to appease the importing
country and to avoid the effects of possible trade restraints on the
part of the importer.
Ex: one of the most famous examples is the limitation on auto
exports to the United States enforced by Japanese automobile
producer in 1981.
Foreign producers agree to VERs because they fear for more
damaging punitive tariffs or import quotas might follow if they do
not.

12. Benefits:
1. Both imports quotas and VERs benefit domestic
producers by limiting competition.
Sufferers:
1. Imports quotas and VER always raises the domestic
price of an imported goods, so VER do not benefit
consumers.

13. 
-
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A local content requirement demands that some
specific fraction of a good be produced domestically
Physical terms ( e.g., 75 percent of component parts
for this product must be produced locally)
Value terms ( e.g., 75 percent of this product must be
produced locally)

14. 
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Initially used by developing countries to help shift from
assembly to production of goods.
Developed countries (US) beginning to implement.
For component parts manufacturer, LC Regulations
acts the same as an import quota
Benefits producers, not consumers

15. 
Bureaucratic rules designed to make
it difficult for imports to enter a
country.
-
In Japan, custom inspectors insisted on
checking every tulip bulb by cutting it
vertically down the middle =>Japanese
„masters‟ in imposing rules.
-
France required all imported videotape
recorders arrive through a small customs entry
point => delayed Japanese VCRs

16. 
Dumpling defined as
-
Selling goods in a foreign market below production costs
Selling goods in a foreign market below fair market value

Dumpling is result of
Unloading excess production in foreign markets
- Predatory behavior, with producers using substantial profits
from their home markets to subsidize prices in a foreign
market with a view to driving indigenous competitors out of
that market.
+ The predatory firm can raise prices and earn substantial
profits.
-

17. 
Antidumping policies are policies designed to punish
foreign firms that engage in dumping

The ultimate objective is to protect domestic producers from
"unfair" foreign competition
Since these practices are naturally considered to be unfair
competition by manufacturers in the country in which the
goods are being dumped, the government of the foreign
country will be asked to impose "anti-dumping" duties
(Countervailing duties)


18. 
Such duties are similar to anti dumping but are not so
severe. These duties are imposed to nullify the
benefits offered through cash assistance or subsidies
by the foreign country to its manufacturers.

The purpose of the duty is to offset, or "countervail”
the subsidy so that the goods cannot be sold at an
artificially low price in the foreign country and
thereby provide unfair competition for local
manufacturers

19. Arguments for Government intervention take 2 paths:
Political
arguments: protect the interests of certain groups
within a nation (normally producers), and often at the
expense of other groups (normally consumers)
Economic
arguments: boost the overall weath of a nation
(to all benefit of all, both producers and consumers)

20. Political
arguments
Protecting consumers
Click to add Title

21. Protecting jobs and industries: is the most
common political argument for government
intervention.
It is needed to protect jobs and industries from more
efficient foreign producers.
 National security: government protect some certain
industries because they are important for national
security (defense- related industries: aerospace,
advanced electronics or semiconductors)


22. 
Retaliation: government should use the threat to
intervene in trade policy as a bargaining tool to help
open foreign markets and force trading partners to
“play by the rule of the games”.
however, it is a risky strategy.
 Protecting
consumers:
many government have had regulations to protect
consumers from unsafe products ( e.x: limiting or
banning the import of certain products)

23. 
o
Furthering Foreign policy objectives: trade policy
can be used to support foreign policy objectives.
- Preferential trade terms can be granted to countries
that a government wants to build strong relation with.
- Trade policy may be used to punish rogue states that
do not abide by international laws or norms.
Note that other countries can undermine unllateral
trade sanctions (e.g US sanctions against Cuba have
not stopped other Western countries from trading
with Cuba)

24. 
Protecting human rights: government can use trade
policy to improve the human rights policies of trading
partners.
The best way to change the internal human rights of
a country is to engage it in international trade
(growing bilateral trade raises the income level of
both countries, people begin to demand and general
receive better treatment with regard
to their human rights)

25. 
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The infant industry argument
Strategic trade policy

26. 
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The Infant industry argument said that: a new
industry in developing countries should be
temporarily supported (with tariffs, import
quotas, subsidies) until they have grown strong
enough to meet international competition.
However, this argument has been criticized because:
- It is useless unless it makes the industry more
efficient
- If a country has a potential comparative
advntages, firms should be capable of raising
necessary funds without additional support from the
government.

27. 
Strategic trade policy: is proposed by some new
trade theorists.
- Government can help raise national income if it can
somehow ensure that the firm to gain first-mover
advantage such an industry are domestic rather than
foreign enterprises.
- Government can help firms overcome barriers to
enter to industries where foreign firms have an initial
advantage.

28. 
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Restrictions on trade may be inappropriate in the
cases of:
Retaliation and trade war
Domestic politics

29. 
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Paul Krugman argues that strategic trade policies
aimed at establishing domestic in a dominant position
in a global industry are begger – the – neighbor
policies that boost national income at the expense of
other countries
Countries that attempt to use such policies will
probably provoke retaliation.

30. From Smith to the Great depression
Until the great depression of the 1930s, most
countries some degree of protectionism
The Smoot-Hawley tariff was enacted in 1930 in
the U.S creating significant import tariffs on foreign
goods
Other nations took similar steps and as the
depression deepened, world trade fell further


31. After
WWII, the U.S. and other nations realized the value
of freer trade, and established the General Agreement on
Tariffs and Trade (GATT)
The approach of GATT (a multilateral agreement to
liberalize trade) was to gradually eliminate barriers to
trade

32. In
the 1980s and early 1990s, the world trading system
was strained
Japan‟s economic strength and huge trade surplus
stressed what had been more equal trading patterns, and
Japan‟s perceived protectionist (neo-mercantilist)
policies created intense political pressures in other
countries
Many countries found that although limited by GATT
from utilizing tariffs, there were many other more subtle
forms of intervention that had the same effects and did
not technically violate GATT

33. The
Uruguay Round of GATT negotiations began in 1986
The talks focused on several areas:
Services and Intellectual Property
Going beyond manufactured goods to address trade issues
related to services and intellectual property, and agriculture
The World Trade Organization
It was hoped that enforcement mechanisms would make the
WTO a more effective policeman of the global trade rules
The
WTO encompassed GATT along with two sisters
organizations, the General Agreement on Trade in Services
(GATS) and the Agreement on Trade Related Aspects of
Intellectual Property Rights (TRIPS)

34. Since
its establishment, the WTO has emerged as an
effective advocate and facilitator of future trade deals,
particularly in such areas as services
So far, the WTO‟s policing and enforcement mechanisms
are having a positive effect
Most countries have adopted WTO recommendations for
trade disputes

35. The
1999 meeting of the WTO in Seattle was important
not only for what happened between the member
countries, but also for what occurred outside the building
Inside, members failed to agree on how to work toward
the reduction of barriers to cross-border trade in
agricultural products and cross-border trade and
investment in services
Outside, the WTO became a magnet for various groups
protesting free trade

36. The current agenda of the WTO focuses on:
the rise of anti-dumping policies
the high level of protectionism in agriculture
the lack of strong protection for intellectual property
rights in many nations
continued high tariffs on nonagricultural goods and
services in many nations

37. 
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Managers need to consider how trade barriers affect the
strategy of the firm and the implication of government
policy on the firm
Trade barriers raise the cost of exporting products to a
country
Voluntary export restraints may limit a firm‟s ability to
serve a country from location outside that country
All of these can raise the firm‟s costs above the level
that could be achieved in a world without trade barriers

38. 
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International firms have an incentive to lobby for free
trade, and keep protectionist pressures from causing
them to have to change strategies
While there may be short run benefits to having
governmental protection in some situations, in the long
run these can backfire and other governments can
rataliate

39. 
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Local exporters will have to
cope with more non-tax
trade barriers while other
countries try to limit imports
and protect production as the
global economic recession
continues.
Vietnam will face increased
competition from other
exporters who have cheaper
labor costs and higher
productivity

40. 
The demand for seafood in major markets like the EU, the US
and Japan has recently increased => trade barriers from importers

41. 
Vietnam‟s tra fish exporters have been accused of failing to
meet food hygiene and safety standards, polluting the
environment, and selling their products too cheaply

It is facing the risk of an anti-dumping duty tax of 35 percent
in Brazil. Brazil has applied stricter import procedures to limit
imports of the fish from Vietnam.

Other markets are strengthening monitoring antibiotic residues
in imported seafood. Japan began to check 100 percent of
shrimp imported from Vietnam on June 9, 2012.

Vietnam should strictly control the use of antibiotics in
seafood production and processing.

42. 
Seafood is not the sole item threatened by trade barriers

US may consider applying anti-dumping duties on Vietnamese
wood interiors used for bedrooms.

Vietnam now is the second largest exporter of such items to the
US, after China

Barriers have been thrown up against Vietnam‟s footwear
exports too.

According to the Trade Remedies Council, Vietnam faced 36
anti-dumping lawsuits, mainly relating to footwear, seafood, and
industrial products (1994-2010)