Question

How can strategic trade policy justify trade protection? What difficulties arise in carrying out a strategic trade policy?

Answer 1

strategic Trade policy justify Trade protection . The term 'stragetic ' means stragetic interaction between firms .The main objective of this policy is to raise the profit of domestic firms by imposing tariff , quota etc . Goverment use these policy instrument to shift profit from foreign to domestic firm that lead to increasing of economic welfare.

Government intervention can help new firms to enter into market.Government also financial assistance to new firms

DIFFICULTIES :

1) Subsidies and tariff can promote the entry of inefficient firms into the markets

2)Nation's citizens may own stock from both domestic and international markets .So the concept of 'domestic 'firm is not much important compared to world international capital markets