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Chapter 12
Controversies in Trade Policy
◼ Chapter Organization
Sophisticated Arguments for Activist Trade Policy
Technology and Externalities
Imperfect Competition and Strategic Trade Policy
Box: A Warning from Intel’s Founder
Case Study: When the Chips Were Up
Globalization and Low-Wage Labor
The Anti-Globalization Movement
Trade and Wages Revisited
Labor Standards and Trade Negotiations
Environmental and Cultural Issues
The WTO and National Independence
Case Study: A Tragedy in Bangladesh
Globalization and the Environment
Globalization, Growth, and Pollution
The Problem of “Pollution Havens”
The Carbon Tariff Dispute
Summary
◼ Chapter Overview
Although the text has shown why, in general, free trade is a good policy, this chapter considers two
controversies in trade policy that challenge free trade. The first regards strategic trade policy. Proponents of
activist government trade intervention argue that certain industries are desirable and may be underfunded by
markets or dominated by imperfect competition and warrant some government intervention. The second
controversy regards the recent debate over the effects of globalization on workers, the environment, and
sovereignty. While the anti-globalization arguments often lack sound structure, their visceral nature
demonstrates that the spread of trade is extremely troubling to some groups.
As seen in the previous chapters, activist trade policy may be justified if there are market failures. One
important type of market failure involves externalities present in high-technology industries due to their
knowledge creation. Existence of externalities associated with research and development and high
technology make the private return to investing in these activities less than their social return. This means
