Trade Agreements And Industrial Policy

Whether industrial policy was the key to Japan`s economic boom in the 1960s and 1970s is still under discussion by many economists. Although in the 1970s a majority of economists answered this question with a resounding yes and it contributed significantly to the economic boom, many economists now believe that the „free play of market forces, fueled by dynamic entrepreneurs,“ was the actor of post-war growth. This theory is supported by the fact that Japanese industrial policy has also had a negative impact on some companies, which are indeed very successful today. For example, the car manufacturer Honda has been banned by Japan`s Ministry of International Trade and Industry, better known as the powerful MITI, from expanding into the automotive industry. Honda, which was only a motorcycle manufacturer, wanted to build cars, but MITI opposed this plan because it did not want another player in this sector. The more globally competitive and open a sector is, the more difficult it is for governments to effectively support businesses. (Choosing the Winner, Saving the Losers, 2010) Federal industrial policy involves the federal government`s decision on industrial structure, the redistribution of resources and production, and the redistribution of income from one region of the country to another and from one income class to another (McKenzie). The role of the government is to identify the sectors that will be perceived as competitive in the future and to provide them with concrete assistance. The aid consists of state subsidies and a large number of protectionist measures, such as trade barriers and tariffs on competing foreign products. Industrial policy also supports federal and regional spending on basic education and worker training to improve competitiveness, restrictions on business closures to slow capital outflows, and federal spending on child care to put more human capital into the labor market.

By focusing on certain sectors, the government hopes to create internationally competitive industries that will have a competitive advantage over all foreign competitors. Proponents of this theory claim that the government has superior information on the most competitive sectors in its country. Through the targeted use and utilization of resources to support these specific industries, the entire nation will be better off because the country specializes in sectors for which it has a competitive advantage. The world we live in today has changed dramatically from the world my parents and grandparents lived in. With the increase in globalization, the world has become increasingly interconnected in different aspects. The phrase „What happens in Vegas stays in Vegas“ could still apply in a social context, although social media has made it harder to keep secrets. However, from an economic point of view, events in one country have repercussions on other countries. Since the introduction of the General Agreement on Tariffs and Trade (GATT) in 1948, trade barriers have been reduced and trade between nations has increased rapidly.

What began as a simple agreement between nations eventually became the World Trade Organization with a total of 159 member states. (World Trade Organization, nd)) Economies around the world are interdependent because the world has become a global market. The recent financial crisis, which began with the collapse of the US housing bubble, showed everyone how the economic conditions of a country in the world can lead to an economic recession. National industrial policy is a series of economic reforms aimed at changing the industrial structure of a country`s economy. Proponents of domestic industrial policy are opposed to a raging market and believe that the government needs to stimulate economic growth by more than fiscal and monetary policy. One of the best-known proponents of industrial policy was Harvard professor Robert Reich….