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kdqt

Uploaded by

hanhphuongst114
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© © All Rights Reserved
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Trade Theory and Government Policy

Trade theory shows why it is beneficial for a country to engage in international


trade even for products it is able to produce for itself

Government policies can have a significant impact on international trade and can
either promote or restrict the benefits of trade theory.

For example, a government can implement policies that promote the


development of domestic industries and protect them from foreign competition.
This can lead to economic growth in the short term, but may also result in higher
prices for consumers and reduced competition in the long term.

All these theories agree that International trade has been a driving force for
economic growth and development throughout the history of the country.
However, it has also been a source of tension and conflict between nations.

Alternatively, a government can implement policies that promote free trade and
remove trade barriers. This can lead to increased competition and lower prices
for consumers, but may also result in job losses and wage stagnation in certain
industries.

International trade allows a country to specialize in the manufacture and export


of products that it can produce efficiently and import products that can be
produced more efficiently in other countries

Mercantilism makes a crude case for government involvement in promoting


exports and limiting imports

Smith, Ricardo, and Heckscher-Ohlin promote unrestricted free trade

New trade theory and Porter’s theory of national competitive advantage justify
limited and selective government intervention to support the development of
certain export-oriented industries
Mercantilism

Mercantilism suggests that it is in a country's best interest to maintain a trade


surplus -- to export more than it imports

Mercantilism advocates government intervention to achieve a surplus in the


balance of trade a gain

It views trade as a zero-sum game - one in which by one country results in a loss
by another

In 1752, David Hume pointed out that:

Increased exports lead to inflation and higher prices

Increased imports lead to lower prices

Result: Country A sells less because of high prices and Country B sells more
because of lower prices

In the long run, no one can keep a trade surplus

Mercantilism was a dominant economic theory in Europe during the 16th to 18th
centuries. It was based on the idea that a country's wealth and power were
measured by its ability to accumulate gold and silver through trade.
The main principles of mercantilism included the belief in the importance of a
favorable balance of trade, the use of protectionist policies to promote domestic
industries, and the accumulation of wealth through the acquisition of colonies.
While these ideas may seem outdated today, they had a significant impact on
the development of modern economic theory and policy.
Similarly, while mercantilist policies can be effective in promoting domestic
industries and exports, they can also lead to higher prices for consumers and
reduced competition. Therefore, it is important for governments to balance the
benefits of different policies with the costs and potential drawbacks.

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