Industrial Policy

Question 1

What is Industrial Policy?

Answer 1

Protecting and subsidizing certain selected industries

Question 2

What is Strategic Trade Policy?

Answer 2

Focusing on trade policy among a small number of interdependents players, i.e., firms and government, where any action brings a reaction

Question 3

What is the result of Strategic Trade Policy?

Answer 3

A nation can create a comparative advantage in areas such as the high-tech industries

Government policy may be able to accomplish “profit shifting” from foreign firms to domestic firms
=> support for government intervention

Question 4

What are the 5 problems with Strategic Trade Policy?

Answer 4

i) Difficult to forecast the outcome of the payoff table
ii) Retaliation
iii) Difficult to define nationalities
iv) Entry can occurs in response to the policy
v) Redistribution from taxpayers to domestic producers