The paper "Does Strategic Trade Foster Competition" is a great example of a macro and microeconomics coursework. Strategic trade describes policies that countries apply to control trade between itself and other countries in the imperfect competition. It is also known as the exports manage system because it aims at controlling the exports of a country. This policy deals with the policies in an oligopoly kind of market (Patel & Patel 2007). The government implements this policy so that they use incomes from foreign trade to their home industries with the aim of improving them.
This policy is applicable in competitive markets where its evidence is the taxes and the subsidies by the government. The rate of taxes that the government imposes depends on the level of competition present among the industries. The subsidies are also dependant on the competition levels. The US is very famous for the use of strategic trade so that they reduce their trade deficits. Subsidies make the costs of carrying out business in the home country cheaper hence; they will export more products than they will import (Carbaugh 2010).
The subsidies lead to a lowering of prices and increase in goods because of the reduction in the cost of production. Due to this, incomes of the country increase as the profits of the foreign market reduce. This results in a shift of the rent to the country from the foreign industries. There are policies that are put in place by countries to improve domestic wellbeing through foreign trade. The aims of this policy are to use incomes from foreign trade to improve their comparative advantage so as to increase their exports.
Its aims are to promote the export of strategic commodities by helping the local industries to produce more goods and of good quality to meet the demands of the foreign market. Some of the strategic policies in use are like taxing exports and subsidizing imports or taxing them. The implementation of these policies can be through a mechanism like an adjustment assistance which helps the young industries in the country to grow while limiting the competition from foreign industries. It is applicable mostly by countries that deal with agricultural products.
Many countries adopt this policy. For instance Malaysia the United States and many other countries. The government might decide to regulate foreign trade by using several methods like the introduction of tariffs on imports. This is done with the aim of discouraging imports so that citizens use products from the local industries. This is also done with the aim of improving the economy of the country. They do that so that they are able to control completion between local industries and foreign trade. Does strategic trade foster competition? These policies adversely affect competition in trade between one country and other foreign countries (Trachtman 2006).
They have negative effects on competition because these policies take away powers from the international markets instead of making these powers stronger. This is because they reduce the earnings of foreign trade and divert them to the local industries. Another reason is that the profits of the local industries will increase hence; increasing the chances of monopoly powers. This calls for systematic planning by the government as they implement strategies trade policies in their countries.
Patel, J. C & Patel, J. (2007): Profit from prices: Profit from prices website.
Carbaugh, R. (2010): International economics: Cengage learning.
Trachtman, J. P. (2006): The international economic law revolution and the right to regulate: Cameron May.
Rugman, A. M. (2009): The oxford handbook of international business: Oxford press.