Question

You must participate in taking part in favor or against the stated P/C topic. It is important to post your opinions, insights, and concerns for this statement. Therefore, take the time to read each section carefully and write down those ideas that you may put on the discussion table. Be sure to write a minimum of one paragraph for each initial post.

Should Nations Use Strategic Trade Policies?

Point

A strategic trade policy, or industrial policy, is one in which a government identifies target industries to develop to be internationally competitive.

Yes If you’re a country that wants to compete in today’s globalized business environment (and you have to), you must develop and maintain some industries that will be internationally competitive. Those industries must grow and earn sufficient revenues to keep your domestic economy growing at least as well as other countries are performing. A government’s role is rarely neutral. The government may claim that its economic policies don’t affect the performance of specific domestic industries on the world stage, but a lot of those policies are bound to have precisely that effect. Who will argue that U.S. efforts to “improve agricultural productivity” and “enhance defense capabilities” have nothing to do with the fact that the United States does a healthy business in the export of farm and aerospace products? Moreover, just about every government policy designed to help one industry will have a negative effect on another. European airlines complain (with some justification) that European government support for high-speed rail traffic deprives them of the revenue they need to compete with U.S.

overseas carriers, which don’t have much to worry about from railroad passenger traffic at home. In other words, national policymakers everywhere face trade-offs. So, if every

government policy will help one party while hurting another, why shouldn’t a country’s practices call for taking special care of the industries that will likely give it its best competitive advantage? Executing such a plan can be pretty simple. First, target a growth industry and figure out what factors make it potentially competitive. Next, identify your country’s likely competitive advantages (and make sure you know why you have them). Finally, develop a little synergy between the strong points you’ve uncovered during both processes: Target the resources needed to support the industries that fit best with your country’s advantages. A strategic trade policy is particularly effective if you’re a developing country. Why? Because you’ve probably already decided that (1) you need to integrate yourself into the global economy and (2) you need to figure out the best way to excel in the international game. If other countries support high potential start-ups and you don’t, your new industries will be disadvantaged. But you need to remember that simply opening up your borders to foreign competition doesn’t necessarily mean that domestic producers will have an easier time competing either abroad or at home. When you do this, foreign competitors may have considerable advantages over homegrown companies you’re trying to foster. They’ve had a head start that’s allowed them to develop not only certain efficiencies but cozy relations with everybody in the international distribution channel. Moreover, no matter how promising your targeted industries may be, or how carefully you’ve tried to match up your industries with your competitive advantages, as a developing country your businesses probably lack the technology and marketing skills they’ll need to compete. So, why not help them? This brings us back to why strategic trade policy is your optimal choice. Your government must protect your local industries—say, by helping them get the skills and technology they’ll need. You could also focus your efforts on attracting foreign investment by companies that have the marketing and technical skills you need; that’s one good way to bring in the kind of production you need. It also wouldn’t hurt to extend incentives within the industries you’re counting on. Want some evidence that strategic trade policy is effective in helping developing nations go global? Look at South Korea, which not only managed to attract companies with experience in consumer-electronics production but eventually emerged as a global competitor by building on imported technologies and targeting technical education to become both a competitive and technical leader. By the same token, we have ample evidence that laissez-faire often doesn’t work in developing countries. In sub-Saharan Africa, for example, government institutions are so deeply rooted that it’s almost impossible for anyone—either individuals or multinationals—to make a move without getting entangled in the bureaucratic undergrowth. Moreover, because no single political institution in developing countries has much in the way of resources, all are better off focusing their collective efforts on specific industries that have some potential for international competitiveness; otherwise, what you have is a bunch of under-resourced agencies and ministries aiming at markets scattered all over the economic landscape.

Counterpoint

NO

Of course, countries should try to become most competitive in the industries that promise the best returns and have the most potential for going global. Obviously, they’re the ones most likely to add value to the national economy. However, strategic trade policy is not the best way to achieve this goal. I’ll make a concession: Under limited circumstances a targeting program will work, particularly for small countries such as Taiwan. Because Taiwan’s GDP amounts to just a little more than the value of Walmart’s annual sales, parties involved can manageably work together to reach mutually beneficial agreements with minimal frustration. But in a large economy? Impossible. However, it’s debatable just how much Taiwan’s economic success is due to strategic trade policy and how much goes back to conditions that existed before the government began involving itself in foreign trade. During the era of Japanese occupation, Taiwan’s infrastructure, literacy, and school attendance improved markedly so that its environment for becoming internationally competitive was well established. Further, when it instituted its import substitution policies, these policies were not really targeting industries to be internationally competitive. An alternative is for a country to focus on conditions affecting its attractiveness as a competitive location in general instead of targeting specific industries. In other words, a government can alter conditions affecting, say, factor proportions, efficiency, and innovation by upgrading production factors—cultivating human skills, moving to new levels of infrastructure, encouraging consumers to demand higher quality products, and promoting an overall competitive environment—for any industry interested in doing business within its borders. Let’s turn to your comments about sub-Saharan Africa. I’ll even make another concession: Inefficiency from political bureaucracy is indeed a way of life in much of the area, and there’s no reason to expect that it will go away any time soon. But what if we looked at things from another perspective? Rather than trying to focus on a specific industry in, say, the global high-tech universe, wouldn’t all these bureaucratic agencies and ministries find it more constructive to review (and enforce) their own laws; take steps to stabilize their populations; rectify their most glaring economic, social, and gender inequities; and support entrepreneurial activity in the informal sectors of their economies? Wouldn’t they find it more positive to foster an environment of trust—one in which, say, the government helps cut transaction costs so local firms will be willing to work with other companies, domestic and foreign, to acquire a little of the knowledge and a few of the resources they need to compete? Again, instead of picking and haggling over special industries, wouldn’t they be better advised to improve the investment environment in which, after all, everybody will ultimately have to operate anyway? At this point, I might as well take the offensive in this debate. Strategic trade policies typically result in no more than small payoffs—primarily because most governments find difficulty in identifying and targeting the right industries. What if a country targets an industry in which global demand never quite lives up to expectations? That’s what happened to the United Kingdom and France when they got together to underwrite supersonic passenger planes. Or what if the domestic companies in a targeted industry simply fall short of being competitive? That’s what happened when Thailand decided to support the steel business. What if too many nations target the same global industries, thereby committing themselves to excessive competition and inadequate returns? What if two countries compete to support the same industry, as happened when both Brazil and Canada decided to produce regional jets in the same hemisphere? Finally, what if a country successfully targets an industry only to find unexpected conditions? Should it stay the course by reacting to various pressures, such as the pressure to support employment in a distressed industry? Finally, even if a government can identify a future growth industry in which a domestic firm is likely to succeed—a very big if—it doesn’t follow that a company deserves public assistance. History recommends that nations permit their entrepreneurs to do what they do best: take risks that don’t jeopardize whole sectors of the economy. The upshot will probably be the same as always: Some will fail, but the successful ones will survive and thrive competitively.

Answer 1

In this contemporary world in order to excel in certain sectors or verticals, the nation should show its interest in building and scaling the industries to compete internationally. The policies of the government are directly proportional to the growth of the industry and the revenue generated shows a major role in domestic industries and the GDP of the nation.

European airlines can't complain about the government investing in high-speed railways as land transport plays a major role in transportation in the European nations than air transport.US investing in defense and agriculture is their necessity as a developed nation. So comparing with nations on what they are doing without understanding the national interest is politically and logically incorrect.

Trade policy is particularly effective if you’re a developing country as you’ve probably already decided that you need to integrate yourself into the global economy and you need to figure out the best way to excel in the international game. If other countries support high potential start-ups and you don’t, your new industries will be disadvantaged, and this is really important for a developed and developing nation to show global interest.

But opening up your borders to foreign competition means that domestic producers will have tougher competition at home. a government can alter conditions affecting, say, factor proportions, efficiency, and innovation by upgrading production factors—cultivating human skills, moving to new levels of infrastructure, encouraging consumers to demand higher quality products, and promoting an overall competitive environment—for any industry interested in doing business within its borders and this absolutely correct way to develop as a nation without risking your domestic industries.

Thailand decided to support the steel business, focussing on one main vertical. Every nation should try to focus on the industry which they are really good at and ease of facilities and infrastructure. If every nation tries to jump to a particular sector and start competing in the same field then the only successful will survive and that will directly impact the global economy.