ABSTRACT
Textbook discussions of trade policy are usually framed by the standard neoclassical Heckscher-Ohlin (HO) model of international trade. Because the HO model permits economists to determine the comparative static gains from free trade, that model is also often used by mainstream economists to estimate the costs and benefits of trade barriers. This first chapter on trade policy presents the orthodox neoclassical analysis of the standard procedures that government policy makers use to interfere with international trade. Covered in this chapter are taris, import quotas, and export subsidies. As already discussed in earlier chapters, the neoclassical HO model of trade misses many important causes and consequences of international trade, and in this chapter we point out the most obvious cases where the orthodox analysis of trade may miss the full eects of trade policies. However, we nevertheless focus on these models because they are regularly used by economists to analyze trade policies. Furthermore, the comparative static analysis does provide some good insight into why governments restrict trade, even if the conclusions only provide a partial picture of trade policy.
