CHAPTER 12

Controversie
in Trade
Policy

Group 10
Trịnh Xuân Linh 18071145
Vương Thị Bích Ngọc 20070278
Nguyễn Hữu Nghĩa 19071429
Nguyễn Xuân Tùng 19071553
Nguyễn Thị Thanh Tú
19071545

Table of Contents

I. Introduction
II. Sophisticated Arguments for Activist
Trade Policy
III. Globalization and Low-Wage Labor
IV. Globalization and the Environment
V. Trade Shocks and Their Impact on
Communities
VI. Summary
Introduction

The theory of international trade policy, like the

theory of international trade itself, has a long,
intellectual tradition.

The intersection of environmental issues - which

increasingly transcend national borders - and trade
policy, with serious economic and legal disputes
II. Sophisticated
Arguments for Activist
Trade Policy
1. Technology and Externalities
2. Imperfect Competition and Strategic Trade
Policy

Bài đấu thầu của Không Gian Chung

Technology and Externalities

Activist Trade Policy

An activist trade policy means government
policies that actively support export industries
through subsidies.
Arguments for activist trade policies are justified
in the light of market failures.
Market Failures
In a perfectly functioning market, individuals
actions lead to the maximization of society's
welfare through an efficient allocation of resources
(Adam Smith's "invisible hand")
A market failure arises when the free market fails
to deliver an efficient allocation of resources.
Technology and Externalities

High Technology
Industries

Knowledge externalities

An externality is the cost or

benefit that affects a party
who did not choose to incur
that cost or benefit.
Technology and Externalities

• High-Technology Industries are characterized

by the importance of knowledge externalities
• Knowledge externalities arise when a firm
creates knowledge that other firms might
implement for free
• The innovator paid the costs required to
generate the innovation but other firms also
benefit from the new knowledge at no cost.
• The government might intervene to provide
incentives for firms to generate knowledge
• The objective is to correct the underinvestment
in R+D generated by the fact that knowledge is
not fully-appropriable.
• One common way is to subsidize high-
technology industries.
 Fig. 12-2: U.S. Manufacturing
Employment

Fig. 12-1: The U.S. Trade Balance in

Information Goods
 Imperfect
Competition
Imperfect Competition

and
Brander-Spencer Analysis

Strategic
Imperfect Competition and Strategic
Trade Policy

Trade Policy
Bản thuyết trình ý tưởng về Không Gian Chung
IMPERFECT COMPETITION

3
Some industries are In these industries, there

1 dominated by a small
number of firms
will be an international
competition for the
excess profits.

A government policy to
These firms have market

2 4
give a domestic firm a
power and generate
strategic advantage in
excess profits
production is called a
strategic trade policy.
 Two firms (Boeing and Airbus)
compete in the international market
but are located in two different
countries (U.S. and EU).

Brander-Spencer Both firms manufacture airplanes, but

Analysis
each firm’s profits depends on the
actions of the other.

Each firm decides to produce or not

depending on profit levels.
Brander-Spencer
Table 12-1: Two-Firm Competition

Analysis

Table 12-2: Effects of a Subsidy to Airbus

STRATEGIC TRADE POLICY
A government policy to give a domestic
firm a strategic advantage in production
is called a strategic trade policy.

1 2
Practical use of strategic trade policy Foreign retaliation also
requires more information about firms could result
than is likely available.

3 Strategic trade policy, like any trade policy, could

be manipulated by politically powerful groups.
II. Globalization and
Low-Wage Labor
 1. THE ANTI-
GLOBALIZATION
MOVEMENT
Outrage over low wages and poor working
conditions in developing-country export
industries was a large part of the
movement’s appeal
 2. Trade and Wages Revisited

Additionally, rather
Maquiladoras, or
than comparing
Mexican businesses
maquiladora labor
that create products for
conditions to those in
export to the United
the United States, one
States, are one
may instead compare
illustration of this
them to those in other
situation
sectors of the Mexican
economy.
3. Labor A protectionist policy may be implemented or
legal action could be taken when domestic
Standards and producers fail to match international
standards
Trade
Negotiations

*Some labor activists urge trade discussions to take labor standards

into account*
 4.
4. Environmental
Environmental and
and Cultural
Cultural Issues
Issues

Environmental
Environmental Cultural
Cultural

The globalization of cultures has

resulted from the increasing market
integration.
5. THE WTO AND NATIONAL INDEPENDENCE

1 2
The World Trade Organization (WTO) is portrayed
as an organized society that has the power to stop
national governments from adopting policies that
are in their own best interests.
The WTO does not resemble a global government;
instead, it primarily has the power to demand that
nations fulfill their obligations under international
trade accords.

3
The WTO does not resemble a global government;
instead, it primarily has the power to demand that
nations fulfill their obligations under international
trade accords.
 1. Globalization, Growth, and Pollution

III. Globalization Abuse of pesticides

Emissions from industrial plants

and the Emissions from vehicles

Causes more environmental harm overall.

Environment
Rising political demands for environmental quality often follow
increases in affluence.
Wealthy nations typically impose stricter regulations to
guarantee clean air and water than less developed nations.

Environmental
Kuznets Curve
2. The Problem of

“Pollution Havens

2.1. The pollution haven hypothesis

The pollution haven hypothesis posits that,

when large industrialized nations seek to

set up factories or offices abroad, they will

often look for the cheapest option in terms

of resources and labor that offers the land

and material access they require

 This often comes at the cost of environmentally unsound practices.
Developing nations with cheap resources and labor tend to have
less stringent environmental regulations.
Developed nations with stricter environmental regulations become
more expensive for companies as a result of the costs associated
with meeting these standards.

=> Companies that choose to physically invest in foreign countries

tend to (re)locate to the countries with the lowest environmental
standards or weakest enforcement.
 2.2. Real-world example

Spent batteries that Americans turn in

to be recycled are increasingly being

sent to Mexico, where the lead inside

them is extracted by crude methods

that are illegal in the United States.

=> Mexico is becoming a pollution haven for the United States battery industry.
These days, shipbreaking rarely takes
place in advanced countries. Instead, it’s
done in places like the Indian
shipbreaking center of Alang, where ships
are run aground on a beach and then
dismantled by men with blowtorches, who
leave a lot of pollution in their wake.

=> In effect, Alang has become a

pollution haven.
 1. Are they really an important factor?

Most empirical research suggests that

the pollution haven effect on

international trade is relatively small.

2. Do they deserve to be a subject of

2.3. Two questions about

international negotiation?
pollution havens That turns out to
depend on the nature

of the environmental problem.

Different forms of pollution have very

different geographical reach—and only

those that extend across national

boundaries obviously justify

international concern.
3. The Carbon Tariff Dispute

The idea behind carbon tariffs is to charge

importers of goods from countries without
climate-change policies an amount
proportional to the carbon dioxide emitted in
the production of those goods.
The charge per ton of emissions would be
equal to the price of carbon dioxide emission
licenses in the domestic market.
Supporters argue that they would
simply place producers of imported
goods and domestic producers on a
level playing field when selling to
domestic consumers, with both
required to pay for their greenhouse
gas emissions.
Critics of carbon tariffs argue that they
would be protectionist, and also violate
international trade rules, which prohibit
discrimination between domestic and
foreign products.

=> At this point, the issue of carbon tariffs is hypothetical, since no major

economy has yet placed a significant price on greenhouse gas emissions.

 IV. TRADE SHOCKS AND THEIR

IMPACT ON COMMUNITIES

The economic analysis Increased trade can Do standard models

of international trade shift the distribution of fully account for the
does not say that free income within countries losses caused by rapid
trade is good for and create losers as shifts in trade?
everyone. well as winners.
SUMMARY The theory of strategic trade policy offered reasons why
countries might gain from promoting particular industries.

Arguments are theoretically persuasive; however, many

economists worry that they are too subtle and require too
much

Trade allows them to earn more than they otherwise

would.
when one tries to view it as a moral issue; it is all too
easy for people to do harm when they are trying to do
good.
Some of the world’s fastest-growing economies are still
relatively poor and on the “wrong” side of the curve.
There is growing concern that globalization may allow
highly polluting industries to move to pollution havens,
where regulation is looser.
THANK YOU!

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