Globalizing America

Globalizing America

The USA in World Integration

New Horizons in International Business series

Edited by Thomas L. Brewer and Gavin Boyd

The authors address questions in current business and policy literature regarding the structural linkages evolving in the globalization process. The authors conclude that the US administration and American firms have to be more responsive to the interests of the international community that are being vitally affected by the integrating effects of transnational production and world trade.

Chapter 4: A public choice perspective on the globalizing of America

Willem Thorbecke

Subjects: business and management, international business

Extract

83 4. A public choice perspective on the globalizing of America Willem Thorbecke INTRODUCTION Traditional international economic models assume that the government promotes the public interest. In such a framework free trade will usually be the policy of choice. Comparative advantage and economies of scale will produce gains from trade, increasing aggregate welfare. Agents profiting from liberalization can compensate those losing and still retain net benefits. A caveat to this analysis concerns optimum tariffs and strategic protection. The optimum tariff argument holds that if a country is large enough to influence its terms of trade, it can employ a tariff to increase welfare. The strategic protection argument holds that in the presence of increasing returns, government subsidies could enable domestic firms to produce at lower average costs and drive foreign rivals out of the market. Both optimum tariffs and strategic protection imply that one country can increase its welfare at the expense of other countries. International relations scholars of the Realist school have viewed trade protection as the attempt of one nation to gain at the expense of others. As Milner (1997) discusses, Realists hold that the state can be represented as a unitary actor. The executive is assumed to add up the gains and losses from any policy into a single ranking. He or she then makes decisions to maximize economic welfare and the national interest. Protectionism in this perspective is viewed as an attempt by a unified rational actor to benefit the home...

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