General Issues and Regional Groups
Edited by Miroslav N. Jovanović
Chapter 7: The Economic Case for Reciprocal Trade Negotiations: Gains from Both Imports and Exports
Paul Wonnacott and Ronald J. Wonnacott1 1 INTRODUCTION In discussing international trade policy, business executives and government officials generally emphasise the gains that come from foreign tariff reduction (FTR):2 their exporters will have greater access to foreign markets. Indeed, negotiators sometimes take the view that better access to foreign markets is the only source of gain, and thus the aim is to reduce foreign barriers while giving up as little of their own trade barriers as possible. On the other hand, a significant thread running through economics is the idea that gains come from cheaper imports. This may perhaps be traced to a simplified view of our Ricardian heritage. In his famous example of comparative advantage, David Ricardo illustrated how a country can gain by producing for export, and trading these exports for imports, rather than trying to produce everything for itself. Often, professors oversimplify Ricardo’s theory with a quick summary: ‘See, we got imports more cheaply than we could have produced them at home!’ This focus on imports sometimes leads to the conclusion that all the economic gains from trade may be achieved by reducing one’s own barriers unilaterally, thus obtaining cheaper imports. According to this view, there is no economic gain from the reduction in foreign trade barriers, and accordingly there is no economic case for reciprocal trade negotiations (RTNs). The first view – the politician’s one-sided emphasis on the gains from exports – is often criticised by economists, and rightly so, on the ground that, by viewing...
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