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Strategic Trade Policy

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Suppose the U.S. government was able to determine which industries would grow the most rapidly over the next 20 years. Explain why this doesn't necessarily mean there should be a policy to support the growth of these industries. Analyze the disadvantages of engaging in strategic trade policy, even in cases where it can be slow to yield an increase in a country's welfare .

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Step 1
If the US government were able to determine which businesses would grow the most over the next 30 years, it does not necessarily means that there should be a policy to support the growth of these industries. Supporting the growth of these industries means either giving subsidies to these industries or restricting external competition or both. The businesses benefit by way of higher profits but the benefits are not passed onto the consumer. Further, when the government restricts competition, extra profits to the businesses do not make them more competitive. The businesses learn to live with protection and lower degree of competition. The government will be compelled to continue with the support to businesses for 30 years. If the government withdraws support the businesses ...

Solution Summary

This solution explains the implications and problems of strategic trade policy. The sources used are also included in the solution.

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