Mercantilist: International Trade and Basic Free Trade

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1. Read the Country Focus (on page 164 in hill’s textbook) on “Is China a Neo-Mercantilist Nation?” a) Are the claims that China is following a neo-mercantilist policy valid?” why or why not? Yes, the claims that China is following a neo-mercantilist policy are valid because China has been trying to maintain a trade surplus (which is the definition of neo mercantilist); placing high import tariffs on certain goods (refer to qtn 3). Besides, the cheap currency encourages domestic investments, discouraging imports and also leads to cheap capital exports. What I found from the internet: China's commercial engagement with the rest of the world is largely scripted from mercantile theory: export boosting policies that are meant to…show more content…
* Through its impact on EOS, trade can increase the variety of goods available to consumers and decrease the average costs of these goods. * In those industries when the output required to attain EOS represents a significant proportion of total world demand, the global market may be able to profitably support only a small no. of enterprises. Thus, world trade in certain products may be dominated by countries whose firms were first movers in their production. * First-mover advantages are the economic and strategic advantages that accrue to early entrants into an industry. * The ability to capture scale of economics ahead of later entrants and thus benefit from a lower cost of structure is an important first-mover advantage. * Govt intervention and strategic trade policy: * Role of luck, entrepreneurship, and innovation in giving firms first-mover advantages. * By the use of subsidies, govt can increase the chances of its domestic firms becoming first movers in newly emerging industries and hence promote the building of national competitive advantage in biotech. * What kind of policies would you recommend that the govt adopt? * Policies that increase the chances of its domestic firms becoming first movers such as government R&D grants, policies that favor the industry in capital markets, policies towards education * Restrict imports into their nations; promote domestic production and exports to protect domestic
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