What is strategic trade policy? What are the pros and cons of such a policy by a nation in its dealings with other nations?

Answer 1

Strategic trade policy assumes that pure free trade is the best system to follow. However, in an imperfect world some nations choose not to play by those rules. In this case, a nation that is open to imports from all may not be able to export much in return. A useful stance, then, is to threaten to protect markets unless other nations agree to open their markets. The goal is to open other markets, and move further toward the goal of pure free trade.

There are several dangers in adopting a strategic trade stance. One is that the threat to close a market must be enacted, or the threat is ineffective. Closing a market hurts citizens in the restricting country, as well as exporters in the original offender. Second, trade policy can be a cover for rent seeking by inefficient firms. Unless carefully planned, strategic trade can "protect" industrial dinosaurs instead of the nation as a whole. Third, strategic trade policy can backfire. Other nations can refuse to comply and can retaliate, moving the world further from the goal of pure free trade. Finally, critics of bureaucracy would suggest that no government office can possibly be as nimble and swift to act as a successful trade policy would require. A trade policy that is quickly out of date and difficult to change might be worse than no policy at all.