3.12 Strategic trade policy
The other economic argument for government intervention concerns industries in which the existence of substantial scale economies implies that world markets will profitably support only a few large firms. This is the case in the aircraft industry: the dominance of Boeing has already been mentioned.
The second element of strategic trade policy is that it might pay governments to intervene in an industry if it helps domestic firms overcome barriers to entry created by firms that have reaped first-mover advantages. Japanese production of LCD components used in computers following their invention in the US is a good example cited in your textbook (page 192). Now turn to your textbook to catch up on the political and economic arguments for government intervention in international trade.
In your text
Hill 2005, Chapter 5, pp. 186-193.
Activity 3.7
- We probably need defence industries and we should protect them from import competition by restricting competitive imports. True or false? Is there an alternative to trade restrictions that might make more economic sense?
- Discuss the methods governments use to protect their domestic business environments.
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