- internal (domestic) negotiation,
  - international negotiation, or
  - information dissemination

TRADE  BARRIERS:  Tariffs
tariff or duty:  "a governmental tax levied on a good shipped internationally" [D&R: 249], typically by the government of the importing country.  Who ultimately pays an import tariff is a function of the relative price elasticity of demand in the importing country:  if demand is inelastic, the purchasers pay a price that is higher nearly by the amount of the tariff;  if demand is elastic, the importer cannot pass so much of the tariff on to its buyers.

countervailing duty:  an import tariff levied to compensate for subsidies or dumping on the part of the exporting country or company.

TRADE  BARRIERS:  Nontariff  barriers that restrict the quantity of goods imported
quota:  a governmentally imposed "limit [to] the quantitative amount of a product allowed to be imported in a given year" [D&R: 256].  Because a quota restricts supply directly, domestic producers can raise prices and keep the increased profit (unless the government levies a compensating tax on domestic producers ).

discriminatory procurement:  government restrictions on the government procurement of imported products (or contract bids from foreign producers);  "buy local" legislation.

discriminatory standards:  government-mandated product or labeling standards that arbitrarily discriminate in favor of domestic products.

import license:  formal permission from a national government, required before an importer can receive goods.

administrative delays:  public- or private-sector slowness in processing required import paperwork.

professional licensing:  governments or private organizations may make it difficult or impossible for foreign-based professionals to obtain licenses to practice in the country.

professional travel restrictions:  governments may make it difficult or impossible for foreign-based professionals to obtain temporary visas to practice in the country.

TRADE  BARRIERS:  Nontariff barriers that affect the relative price of products
subsidies:  financial or service support by governments to assist domestic producers identify and sell to foreign markets;  financial support or favorable contracts from government to domestic producers who are engaged in exporting.

discriminatory customs valuation:  inflating the imputed value of imported goods for the purpose of levying an ad valorem tariff.

dumping:  private- or public-sector selling of goods (or services) in foreign markets for less than the typical price in the domestic market, or even for less than the marginal cost of producing for the foreign markets.

TRADE  POLICIES
Protectionist versus open markets:  a matter of degree

Managed trade: trade that is controlled, directed, or administered by government policies; bilateral or multilateral trade agreements that establish quantitative targets for trade flows

Strategic trade policy:  industry-specific protection, for national-security, economic-strategy or "infant-industry" reasons (see Daniels & Radebaugh, p. 240)

Import substitution as a policy of economic development

Export promotion as a policy of economic development

ARGUMENTS FOR PROTECTION:
F.R. Root (International Trade and Investment;  1990)  presented these in 4 categories:

"False arguments"
1.  "Money is valuable, and should be kept in the country."
 · imports are paid either with exports or with net capital inflow

2.  "Jobs are valuable, and should be kept in the country."
 · people should be employed at their most productive activities, not at activities that could be better performed elsewhere
 · under-employed resources should be put to use most productively, and under-employment should be attacked via domestic economic policy rather than trade policy

3.  "Imports have unfair advantages (e.g., lower waged labor), which should be compensated for by tariff or other barriers."
 · if there were no advantages, there would be no gains from trade
 · if a foreign government wants to subsidize the consumption of another government through keeping export costs low, the importing country benefits

4.  "Trade brings all wages to the lowest common denominator;  high-wage countries cannot afford to trade with low-wage countries."
 · trade will equilibrate real wages at prevailing exchange rates only if all other elements of cost (resource base, productivity, capital costs, infrastructure, labor skills, technologies, etc., for each possible product) are equal across countries:  there are gains from trade so long as the cost ratios for production of different items are different across countries

5.  "Moves toward increased trade would hurt certain domestic sectors."
 · yes, but to the greater benefit of the country as a whole.

 "Questionable arguments"
1.  "When factors (especially people) are unemployed, it is better to put them to work producing something that is more efficiently produced abroad, than to have unemployed resources."
 · Root argues that we don't have to employ every acre of land or worker-hour to maximize output/input;  the problem, however, stems from the political difficulty of sharing returns across households when the factors that some households have to offer are not used, and from the identification of market labor with livelihood.
 · Root argues that trade policy is not the best arena for building employment policy:  cyclical unemployment calls for countercyclical measures, and structural unemployment calls for structural change enhanced by assistance to factor mobility (information, training)
 · The likelihood of international retaliation reduces the long-term effectiveness of a protectionist approach to employment policy.

2.  "When a foreign company or government subsidizes exports to sell at a price lower than costs ("dumping"), the unfair competition must be stopped."
 · Root distinguishes between persistent and predatory dumping (in reality, it is difficult to distinguish them);  the former is a positive inter-country transfer of wealth, and should be welcomed;  the latter should face countervailing duties to prevent the destruction of a basically sound domestic industry and subsequent import-price hikes.
 · How can you know which is which?

3.  "Trade barriers can be useful bargaining chips in negotiations."
 · Yes, but they are also hindrances to a country's citizens reaping benefits of efficient foreign production.

4.  "Reciprocity argument," which we will study later as "managed trade":  "a country with relatively few trade barriers should raise barriers against countries that don't lower theirs."
 · would the net result be the removal of trade barriers or their ratcheting upward?  a matter of international politics

 "Qualified arguments"
1.  National security:  "We need to maintain production capacity in key industries"
 · Root recognizes that economic costs are appropriately borne in the interest of security, but asks which industries should be protected.
 · After industries are selected, the economic preference is for a subsidy to the domestic industry rather than a tariff or barrier to imports -- the difference is that the subsidy costs all taxpayers through the Treasury rather than consumers through the "hidden tax" of the tariff.

2.  " 'Infant industries' can become efficient with temporary protection to gain economies of scale or experience."
 · Hard to identify the best candidates, hard to remove the protection.
 · Root suggests a subsidy, because it is reviewed with each appropriation cycle (though in the case of agricultural subsidies...)

This argument essentially cites a market failure:  an unwillingness of capital markets to supply (patient) capital to a sector that is likely to become quite profitable.  Therefore, the best solution is to provide a capital subsidy of some sort, while retaining international competition.
 

3.  "Specialization according to comparative advantage brings the cost of export-earnings instability if specialization is in basic commodities, and brings the cost of unbalanced development in general."
 · Industrial targeting for additional exports is difficult, but it is better than protective tariffs in the name of import substitution.
 

 "Sophisticated arguments"
1.  "Tariffs can be placed on imports for which supply elasticities are less than import-demand elasticities (e.g., for which the importing country is a near-monopsonist because of size, proximity, or other attribute) such that net revenue is raised for the importing country's government":  the theory of the "optimal tariff."
 · Could start a trade war;  certainly reduces the income (and buying power) of countries that export commodities to countries with many other possible sources.

2.  "Theory of the second best":  counter the distorted signals of free trade (amid scale economies, under-used factors that don't clear the market, etc.) with tariffs to help manage trade flows in line with better factor use.  I.e., the market is not working because of externalities or government intervention, so increase the government intervention.
 · This reasoning could be used to justify a tariff set to equal government-imposed costs of domestic producers, when the government tax is for a public good (e.g., education or pollution control or health care).
 · This may be a second-best way out of the difficulty that national governments are having in implementing domestic policies (like a health-insurance tax) within an internationally competitive context.

3.  The newest argument relies upon dynamic economies of scale, especially those that are external to the firms in the given sector:  at the meso-economic level, these might be called dynamic comparative advantage.  Sources for externalities include the inability of a firm to appropriate all the returns to its investment in technology or labor training.  Dillon et al. suggest a direct response rather than a trade-policy response:  a subsidy to technology or labor-training expenditures.

Political concerns over free trade
 · national sourcing for national security (but if taken too far...)
 · insulation from foreign influences

Politics of trade
• international politics:
 a) the end of the Cold War --> reduced foreign-policy mandate for each of the three economic superpowers to agree (typically with the US giving in on trade matters) to maintain an anti-Soviet alliance;
 b) trade politics became front-burner issues, with the three economic superpowers seen as antagonists;
 c) unstable alliance between US & EC against Japan (with CFTA and NAFTA seen as a US attempt to "warn" EC)

• domestic politics
 · US:  protectionist organized L;  somewhat protectionist L;  business split between national vs. global lines, and according to sector;  agricultural interests (esp. organized around Congressional representatives from agric. regions);  unorganized consumers
 · Japan:  mutually organized big business and government;  strong agricultural interests;  "Japanese consumer interests that stood to benefit from greater competition were simply not accorded a place on the Japanese side of the negotiating table" [Tyson, 1993: 74].

There is a systematic bias when it comes to government policy making, exemplified perfectly by trade policy-making:  the minor impact of a policy on the majority of people makes them politically passive with regard to that policy;  the political process is dominated by the relatively few interests with a substantial stake in each given issue.  Thus, few people vote for a candidate on the basis of a platform to gain access to somewhat better products at somewhat lower prices, while anyone whose job or investment is at risk will vote, campaign, and donate money to protect it.

Given this, the substantial liberalization of trade over the past two decades reflects the political power of MNCs (i.e., most large firms) -- not the popular triumph of economic orthodoxy.  Unfortunately, this route toward liberalization has meant that the "side payments," that might compensate aggrieved parties from the gains to a country overall, have not often been made.

What are appropriate labor strategies, within the context of economic liberalism?