国际经济学第九章TRADElecture9.ppt

The Cases for Free Trade The first case for free trade is the argument that producers and consumers allocate resources most efficiently when governments do not distort market prices through trade policy. National welfare of a small country is highest with free trade. With restricted trade, consumers pay higher prices. With restricted trade, distorted prices cause overproduction either by existing firms producing more or by more firms entering the industry. Fig. 9-1: The Efficiency Case for Free Trade The Cases for Free Trade (cont.) However, because tariff rates are already low for most countries, the estimated benefits of moving to free trade are only a small fraction of national income for most countries. Table 9-1: Benefits of a Move to Worldwide Free Trade (percent of GDP) The Cases for Free Trade (cont.) Yet when quotas are used instead of tariffs, costs can be magnified through rent seeking. To seek quota licenses or the rights to sell a restricted number of imports and the profit that they will earn, individuals or institutions need to spend time and other resources. Thus, another reason why trade allocates resources efficiently is that it avoids the loss of resources through rent seeking. The Cases for Free Trade (cont.) A second argument for free trade is that it allows firms or industry to take advantage of economies of scale. A third argument for free trade is that it provides competition and opportunities for innovation. These are dynamic benefits, unlike the static benefits of eliminating the efficiency losses caused by distorted prices and overproduction. The Cases for Free Trade (cont.) A fourth argument, called the political argument for free trade, says that free trade is the best feasible political policy, even though there may be better policies in principle. Any policy that deviates from free trade would be quickly manipulated by political groups, leading to decreased national welfare. The Cases Against Free Trade For a “large” country, a tar