国际贸易理论和实务Ch.8 Argument against free trade.pptVIP

  §1 Traditional Arguments against Free Trade  1. Infant industry argument An argument in favor of protecting the domestic backdated industries through government backing, help, and intervention. The main motive is to create a level playing field. Home country industry “late start” If protection temporarily, firms realize sufficient economies of scale (internal or external) Eventually per-unit costs fall, home industry becomes an exporter. At this point protection can be removed. Consumers finance the expansion, but more than repaid when the industry grows. Two problems that come up with this argument: The identification of infant industry. The industries that are likely to become low-cost producers should be indentified. Costs amount of foreign exchange saved? (2) The form of protection. Tariff or subsidy？ A subsidy has a lower welfare cost to the country than a tariff. Why not let the industry proceed on its own? Build efficient system in allocating funds through deregulation or government guarantees for the loans. 2. Terms of trade argument (1) Argument (2) Problems: Fail to consider reduced level of home country’s welfare because of the country’s reduced consumption of low-cost imports. This additional consideration of forgone quantities is brought into the analysis through the concept of the optimum tariff rate. The optimum tariff rate is the rate that maximizes the country’s welfare. Conceptually, it is the tariff rate at which the positive difference between the gain from better prices and the loss from reduced quantity of imports is at a maximum. (ii) Beggar-my-neighbor argument （gain at the expense of foreign countries） Harm the trading partner; Trading partner will retaliate with a tariff of its own; End up with reduced welfare; Neither country may end up with better terms-of-trade. 3. Balance of trade argument Balance of trade = value of expor