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International trade : Commercial policy
Author(s)
Date Issued
2001-10
Date Available
2009-07-20T14:26:13Z
Abstract
Following a brief historical introduction and a discussion of different types of
commercial policy, this paper reviews the arguments for and against trade protection. In the bench-mark case of a competitive, small, open economy, free trade maximizes aggregate national welfare, although some individual groups will lose unless compensation is actually paid. Guidelines for policy include the uniform reduction and "concertina" rules for tariff cuts, and the principle of targeting: corrective measures should be applied as close to the
source of the "distortion" as possible. Relaxing the bench-mark assumptions allows
exceptions to the case for free trade: "optimal" tariffs to manipulate world prices; "strategic" tariffs or export subsidies when home firms engage in oligopolistic competition with foreign
rivals; and infant industry protection to allow home firms benefit from learning by doing. Protection can also raise the growth rate, though it is less likely to raise welfare in a growing economy. Overall, with due allowance for some ambiguity, both theoretical arguments and empirical evidence suggest a pragmatic case for free trade. Finally, the paper notes the
political pressures for and against protection, and the role of international institutions such as the GATT in underpinning moves towards freer trade.
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Series
UCD Centre for Economic Research Working Paper Series
WP01/23
Subject – LCSH
Commercial policy
Protectionism
Free trade
International trade
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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