Chapter 12: Government and International Commerce

Many discussions of international economic issues ignore the vital role of private enterprises and the effects of public polilies on business. When we examine foreign trade from that viewpoint, we gain new insights. At the other end of the spectrum of global activity, an extreme case of transnational business was cited by former U.S. Secretary of State George Shultz.
The most striking indicators of continuing American influence, if not power, in the world economy are quite unconventional. In the 1980s, some of the most powerful calls for restraint of international trade and investment came from the American automotive industry and the United Auto Workers union, which earlier had been bastions of free trade.
The argument in favor of freer trade is supported by historical evidence. Through most of the twentieth century, the United States played a leadership role in devekoping the world trading system.
Around the beginning of the twentieth century, the dynamics of the American economy shifted. Exports and imports became smaller shares of GDP.

Generalizing from historical experience, the advantages of freer trade are numerous

• Open trade contributes to lowering inflationary pressures by increasing the supply of goods and services competing for the consumer's dollar
• Open trade minimizes the role of government in influencing private-sector decisions in the international marketplace.
• Open trade improves the efficiency with which resources are allocated by permitting the operation of the principle of comparative advantage. tehreby, the society can achieve more growth, higher levels of employment, and an improved living standard.

The United States is hardly an island of free trade in a world of protectionism. The federal goverment impose numerous obstacles to imports, restricts various types of exports, and also dicourages or prevents certain types of foreign investment. Five major types of trade obstacles inhibit imports into the United States

• Buy-American statutes, which give preference in government procurement to domestic producers
• The Jones Act, which prohibits foreign ships from engaging in waterborne commerce between U.S. ports
• Statutes that limit the timport of specific agricultural and manufactured products
• Selective high triffs on specific items
• Regulatory barriers aimed at protecting domestic producers

Perhaps the most striking indicators of continuing American influence, if not power, in the world economy are quite unconventional.

 source: Business and Government in the Global Marketplace (7 edition, Murray L. Weidenbaum)