A Study On Foreign Strategic Trade Policy And Its Implication To China

The current international trade takes on a new look that competition and monopoly co-exist and that free trade and protectionism complement each other. The trend of internationalization, globalization and integration is strengthened constantly. Free competition and free trade are all countries and international organizations'expectation, however, because of fierce international competition, enterprises and governments strive to use national power to establish monopolistic corporations that will have better competitive positions in the world market, that have boosted up the protectionism. Along with the other new international trade theories, the strategic trade policy theory paid plenty of attention to the above situations in the 1980s. The strategic trade policy theory broke the assumption of perfect competition which is taken by classical free trade theory, proposed the assumption of imperfect competition and increasing returns to scale, which injected new thought into the research of the international trade. This paper tries to obtain some useful experience from EU and India that have successfully applied the strategic trade policy theory.This paper is divided into 4 sections. Section one(Introduction) introduces the theoretical and practical significance of this subject, provides a brief review of the relevant literatures both from domestic and abroad scholars, at last gives the structure of this paper and also the conclusions and the innovative point of this paper. Section two discusses the concept of strategic trade policy and its requirements for applying it. The strategic trade policy refers to that, under economies of scale and imperfect competition, a government may draw on the measures such as the subsidies for manufacture, R&D, import and/or export, the tariff, the protection of domestic market etc., to support its strategic industries and level up their competition position in the world market, gain the extra profit from economies of scale and external economy or something like this, capture their competitors'market share, lead the specialization in the world to the way which will fit himself better, and finally promote the whole country's welfare. As to the content of strategic trade policy theory, it consists two parts, which are the profit transition theory and external economy theory. The profit transition theory bases on the idea that there is excess monopoly profit or rent in the monopoly industries. So the government can influence the actions of the domestic companies and their competitors by utilizing trade interference measures, and then change the competition structure, extract the rent from the foreign monopoly companies, or shift profit to the domestic companies. There are three different kinds of policies, the strategic export policy, the strategic import policy and export promoting policy by using import protection. The external economy theory suggests that the government should support and protect the industries which have external economy, and help them go through the world competition. Its core idea is that the protection will not only promote the external economy industry, but also boost the relevant industries through forward and backward effect, and at last enhance the competitive ability of domestic industries, gain the long-run strategic interest.Section three introduces two cases, in which the EU's Airbus company and the India's software industry developed quickly by applying the strategic trade policy. Airbus's success was introduced by lots of economists as a classical case of company gaming under Cournot equilibrium, especially it snatched considerable market share from an oligopolistic market. The US's airplane manufacture industries, as well as the economists, owe Airbus's success to the government's fiscal subsidies. The subsidies help Airbus sell their planes which are comparable in the performance at a lower price. The analysis shows that there are two direct factors to explain Airbus's success. The first is that the technical gap between Airbus and Boeing is becoming smaller and smaller, on the other hand, the quickly enlarged manufacture scale plays a very important role too. However, the two factors are both close connected with the EU governments'support. For example, the governments'subsidies are an important support for the R&D, and the impetus of market promotion, and it also matters a lot to realize the economies of scale. If the Airbus is taken as a classical case applying strategic trade policy by developed country, the India's software industry could be taken as the developing country's successful practice. At the beginning of 1980s, the world software market is monopolized by the developed countries such as the USA, Japan, etc.. India just played an insignificant part. But through two decades'development, India now has been one of the biggest five software suppliers. People concentrate their attention to the strategic trade policy and industrial policy when they analyze the development of India's software industry: the accuracy of choosing and positioning the strategy industry, the capital support from tariff, favorable import and export terms, the development of Software Technology Parks, the production that oriented the world market, cultivating competent corporations to do business in the global market, etc., all the above had served the prosperity of India's software industry.Section four expatiates the path China should choose in applying the strategic trade policy. China has stepped into the metaphase of industrialization, confronted with the upgrade of industry structure. The labor-intensive manufacture will not serve the long term interest of China. And China also should not be labeled as the world workshop. We should consider more of the competitive advantage than comparative advantage, what's more, we should use a dynamic judgment to see it. To improve the trade terms of China, to adjust the trade structure, to level up the competitive position of"Made in China", to improve the status in the global value chain, it's necessary and pressing to apply the strategic trade policy. First, we should build a fair and integrated domestic market; second, we should correctly choose the target industry; third, we should upgrade the industry structure; and last, we should enhance the support to the strategic industry. Besides, we should also avail ourselves of the relevant WTO terms and rules.