STRATEGIC TRADE POLICIES

Abstract

Strategic trade policy in world markets has been a popular and relatively new research topic. The recent theoretical literature on strategic trade policy argument suggests that with government intervention -for example with export promotion, tariffs, etc..-, governments may enable domestic firms to capture economic rents from foreign firms. So, this argument shows that, by supporting its firms in international competition, a government can raise national welfare at another country’s expense. This policy suggests that under imperfect competition the governments must pursuit strategic trade policies. But, at the same time, advocates of this policy always claim that, comparative advantage is realistic argument and free trade is the best -and right- policy under perfect competition and Pareto- optimum conditions.