Chapter 2.4: Contemporary mercantilism

Question 1

What is the argument of strategic trade theory?

Answer 1

governments and industries can use trade protection and subsidies in a strategic way to expand their global market share and pre-empt entry into the market by competitor firms

Question 2

Economists have sought to explain the persistence of state intervention in?

Answer 2

high-technology sectors such as computer and automobile production

• through strategic trade theory

Question 3

When can state intervention be useful? In which kind of market?

Answer 3

Oligopolistic markets with few large companies and high entry costs

Question 4

What other variant of mercantilist thinking gained widespread attention?

Answer 4

theory of hegemonic stability

Question 5

How did theory of hegemonic stability come about?

Answer 5

proposed by Charles Kindleberger to explain the collapsed of international order in the troubled interwar years, when US was unwilling and the UK no longer able to provide hegemonic leadership

Question 6

How does a Hegemon help in stability?

Answer 6

a hegemon: dominant power with preponderant power resources

• competitive and conflictual nature of international system
• set norms and rules
• ensure compliance by other states
• inducing cooperative behaviour through giving financial aid or economic concessions to other states
• if needed, economic and military strength to coerce other nations into compliance

Question 7

Example of a hegemony helping through financial aid?

Answer 7

US economic aid through the Marshall Plan instrumental in helping with economic recovery process in Europe

Question 8

What did the critics of hegemonic theory point out?

Answer 8

hegemonic theory fails to explain the continued existence of international order and stability during the 1960s and 1970s when US hegemony was in decline

• hegemons play an important role in creating rather than maintaining international order

Question 9

How does mercantilist thought in the 20th century depart from traditional mercantilist themes?

Answer 9

considers a system of free trade as integral to hegemonic order

traditional
- manage trade to achieve favourable trade balance

hegemonic stability
- free trade can only be secured if backed up by a hegemonic state with preponderant power