Strategic Trade Policy: A New Development in Protectionism
In the past decade, strategic trade policy (STP) has become a popular option for governments looking to promote a more active trade policy and to protect their domestic industries. STP is defined as a “coherent set of policy measures that are intended to increase the international competitiveness of domestic firms” (Cimoli et al., 2016, p.2). While STP has the potential to benefit domestic economies by increasing their competitiveness and providing protection to certain industries, there are also a number of difficulties posed by such policies. One of the key difficulties posed by STP relates to its potential to harm global welfare. By intervening in the market, STP policies have the potential to distort trade flows and reduce the efficiency of resource allocation (Cimoli et al., 2016). This may mean that resources are allocated in such a way that global welfare is reduced. Furthermore, STP policies often require governments to interfere in the market, potentially creating an environment of higher uncertainty and making it difficult for firms to make decisions based on rational economic principles (Cimoli et al., 2016). Another issue is that STP policies often require governments to make difficult decisions. Governments must decide which. Cont…
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