Exam 2: Trade

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Political arguments include saving jobs and industries, protecting consumer health, national security, supporting foreign policy, and human rights protection.
As the steel and textile industries in the U.S. continue to lose their comparative advantage, workers can seek governmental protectionist measures to save their jobs.
In order to protect consumer health, the EU banned the importation of hormone-treated beef from the U.S. However, this caused a trade dispute as U.S. exports declined from $231 million in 1988 to $98 million in 1994. So the U.S. filed a complaint to the WTO in 1995 and the WTO panel ruled that the EU's ban on hormone-treated beef was illegal. As a result, the WTO allowed the U.S. to impose punitive tariffs valued at $120 million on hundreds of EU products in 1999. In 2012, the EU struck a deal with the U.S. to continue with the ban but to increase its import quota of high-quality non-hormone treated beef from the U.S.
Matters of national security are also a justification for government intervention as the U.S. government is concerned with China's cyber campaign to steal trade secrets and intellectual property.
Trade policy is also an extension of foreign policy as the U.S. puts sanctions on countries, hoping that economic pressures will change governmental policies. The U.S. government has trade sanctions on Iran, Iraq, and North Korea, hoping that totalitarian government regimes will be replaced by democracy.
Human rights protection is used to leverage protectionism as the U.S. government has criticized the Chinese government's lack of effort to improve its domestic human rights situation and has questioned whether it should have its most favored nation status renewed.
Economic arguments include infant industry arguments and strategic trade policy.
The oldest argument for government intervention is for developing countries to protect its new industry that cannot compete with already well-established competitors from developed countries.
The recent trade dispute between Boeing and Airbus reflects strategic trade policy employed by developed countries, in which the country's government can subsidize its domestic companies to gain a first-mover advantage.

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Because China is the second largest economy in the world and has a trade surplus, many Americans believe that China is the principal culprit of the U.S. trade deficit. However, the root cause of the trade deficit is a low savings rate and high government spending. The U.S. does not have a high enough domestic savings rate to finance investments for economic growth, so they must borrow money from other countries or attract foreign direct investment to bring in capital.