Trade Agreements And Industrial Policy

Despite the great success of the World Trade Organization in promoting free trade around the world, this success has not been without too much criticism. Many people argue that free trade does not make all economies better and that it takes jobs away from national economies. Some economists believe that federal economic policy, a policy by which the government encourages growth in certain sectors, would make the U.S. economy better. Whether the United States should apply this model is not a new idea. In the 1980s, many Democratic presidential candidates insisted on a federal industrial policy to help American manufacturing, on the brink of destruction due to increasing competition from European nations and Japan. Even today, under the Obama administration, it is a hot topic in the field of the economy and the international economy. But what exactly would federal industrial policy and would it make the United States a winner? Whether industrial policy was the key to Japan`s economic boom in the 1960s and 1970s is still debated by many economists. Although in the 1970s a majority of economists clearly answered yes to this question and contributed significantly to the economic boom, many economists now believe that “the free play of market forces driven by dynamic entrepreneurs” was the player in post-war growth. This theory is supported by the fact that Japanese industrial policy has also had a negative impact on some companies, which today are actually very successful. For example, automaker Honda has been banned from expanding into the automotive industry by Japan`s Ministry of International Trade and Industry, better known as the powerful MITI. Honda, which was only a motorcycle manufacturer, wanted to build cars, but MITI was against this plan because it did not want any other player in this sector. The more competitive and open a sector is globally, the more difficult it is for governments to effectively promote business.

(Select winners, save losers, 2010) The world we live in today has radically changed from the world my parents and grandparents lived in. With increasing globalization, the world is increasingly interconnected in different aspects. The phrase “What happens in Vegas stays in Vegas” could still apply in a social context, although social media has made it more difficult to keep secrets. However, from an economic point of view, events in one country will have an impact on other countries. Since the introduction of the General Agreement on Tariffs and Trade (GATT) in 1948, trade barriers have been reduced and trade between nations has increased rapidly. What began as a simple agreement between nations eventually became the World Trade Organization with a total of 159 member countries. (World Trade Organization, n.d.) Economies around the world are interdependent because the world has become a global market. The recent financial crisis, which began with the collapse of the U.S. housing bubble, showed everyone how a country`s economic conditions can lead to a global economic recession. In the late 1980s, the Japanese government put an end to industrial policy and intervened less in the market.