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Economic integration is an agreement among countries in a geographical region or unification of economic policies between different states aiming to reduce and ultimately remove tariff and non-tariff barriers on trade. The fruit of globalization is the tremendous rise of economic integration as globalization loosens barriers among the nations through reduction in cross-border duties and eases trade policies. Trumponomics is defined as the economic policies of US President Donald Trump that prefers high import tariff to bring “America First.” There is a debate among the researchers about the choice between free trade and protection or imposition of tariff. Some of them prefer free trade because during the start of the great depression, the world economy experienced a huge shift toward protectionism. Choice between no-tariff and tariff represents a prisoner’s dilemma situation whereby each player’s best response is to employ tariffs. This results in a sub-optimal outcome for all where the total volume of world trade falls, which is a Nash solution. The present chapter deals with theoretical discussions on trade war and throws light on the developing country’s choice between non-protectionism supported by globalization and Trump’s protectionism.

Demonstrates the implications of imperfect substitutability between domestic and imported final goods for the determination of second‐best nominal and effective tariffs in a general equilibrium setting. The analysis of second‐best interventions for given policy distortions extends that by Ruffin and Casas on homogeneous goods to the case where there is product heterogeneity. The second‐best optimal effective rate of protection for given policy distortions is shown to depend upon the nature of the policy distortion and the degree of substitutability between imported and domestic varieties. Although imperfect substitution reduces the extent to which effective protection can be determined from the structure of protection, it increases the extent to which second best tariffs can be determined in a qualitative sense at least when compared with the traditional, perfect substitution case.

In macroeconomics, the term recession is defined as a significant decadence in ordinary economic activity in a designated region. There are so many economic theories attempted to explain why and how the economy might fall off of its long-term growth trend and in to a period of short-term recession. Economists say there have been 33 recession in the United States since 1854 through 2018 in total. Since 1980, there have been four such periods of negative economic growth that were considered recession in the wake of the 2008 financial crisis and the Great Depression of the 1930s. Production and flows of goods are directly influenced by the tariff; uses input–output analysis to estimate indirect effects on gross domestic product, exports and employment; and allows redirection of trade toward other producers. The ongoing trade war with similar trade conflicts in history, we reveal three major causes, with varying degrees of importance from both economic and political perspectives.

In this chapter I put forward a framework to help us understand the underlying sources of national policy failures regarding intellectual property rights (IPR) protection, the need for international coordination, and how the coordination should be done. I also analyze whether global harmonization of IPR standards is necessary or sufficient for achieving globally welfare-maximizing policies. Then I move on to analyze the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which is a mighty effort to coordinate IPR policies across member countries of the World Trade Organization (WTO). I discuss what TRIPS was supposed to do and what it has actually achieved, with reference to my theoretical framework. I explain that it is desirable for IPR to be included in world trade talks and be negotiated along with other trade issues. I offer analyses on the extensions of the basic model by introducing political economy and trade barriers, as well as allowing countries to discriminate against foreign firms. Finally, I comment on further potential extensions such as introduction of foreign direct investment (FDI) or licensing, parallel imports, cumulative innovations, subject matter of protection and costs of implementation. The main thrust of the basic model is that, provided that there is free trade and non-discrimination of foreign firms, there exist positive cross-border externalities as a country strengthens its IPR protection, since it raises the profits of foreign firms and the welfare of foreign consumers without causing any deadweight loss on foreign soil. This implies that national governments tend to provide too little IPR protection compared with the global optimum. The model also implies that a country with higher innovative capability and larger domestic market would provide stronger IPR. Thus, it is natural for the South to protect IPR less than the North in the absence of international coordination. These basic results largely continue to hold under various extensions.

The chapter attempts to develop a micro-theoretic model to explain the genesis of trade war in light of the behavioral interdependence of two countries connected through international trade and, thereof, it analyses its welfare implication with respect to the countries at feud. In this regard, it is important to mention that the evolution of trade war herein has been articulated in terms of the retaliation of one country as reaction to the one time-tariff imposition by the other. The fundamental takeaways are twofold. First, how evolution of tariff war can be articulated in light two-stage game governments are coming to decide on tariff policy a priori, followed by second-stage featuring firms being decisive on the production level and then the games repeats where governments again come up to introspects if the a priori tariff rates are compatible with welfare optimization to be followed up by firms. Second, the nature of the ultimate fallout of the tariff retaliation will depend crucially on how welfare function of each country is paced with the country’s tariff policy.

Purpose – This chapter examines how preferential liberalization between a pair of countries affects the terms of trade and welfare of the liberalizing countries and on the rest of the world (ROW). We adopt a model with symmetric countries that generalizes previous work by relaxing assumptions on functional forms, which allows for the possibility that exports of member countries are complements for exports of the ROW.

Methodology/approach – This chapter uses general equilibrium welfare analysis for a three-country trade model.

Findings – We show that Kemp–Wan tariff adjustments require a decrease (increase) in the external tariff of members in a preferential trade agreement to accompany internal liberalization in the neighborhood of internal free trade when member goods are substitutes (complements) for non-member goods. However, the adjustment path of the external tariff to reductions in the internal tariff could be non-monotonic when preferences are not of the CES type.

Practical implications – Our results are of interest for the design of rules for multilateral trade agreements with respect to preferential liberalization, since they indicate how tariffs must be adjusted to eliminate negative impacts on non-member countries.

A somewhat underappreciated aspect of the burgeoning rush to regional trade agreements (RTAs) is a discrepancy between the dispute settlement procedure (DSP) embodied in the original World Trade Organization (WTO) Dispute Settlement Understanding (DSU) and that found in the language of many RTAs. This chapter explores the issue in the context of a dynamic repeated game of trade agreements. As is well known, the institutional alternatives available in negotiating multilateral freer trade agreements – regional agreements, side agreements, trade dispute settlement punishments, and so on – can proscribe the limits and shape the nature of self-enforcing trade agreements. Here, we suggest the extent to which deviations from the WTO DSP embodied in RTAs – for example, “private interest access,” “third party procedures,” and “choice of forum” – can not only work against the interests of “weaker parties” but furthermore undermine multilateral agreements closer to free trade.

Purpose – This chapter shows that in the presence of tourism, the traditional policy prescription, free trade in goods and the standard Pigouvian tax on pollution, is not optimal for a small open economy.

Methodology/approach – The general-equilibrium analysis is employed to study environmental regulations for a small open economy with tourism.

Findings – Foreign tourists consume mainly local non-traded goods in the tourist-receiving economy. Inbound tourism converts formally non-traded goods into tradables, generating a tourism terms-of-trade effect. Owing to this favourable effect, positive tariffs and stricter pollution taxes can actually improve welfare of domestic residents. The optimal rates of tariffs and pollution taxes are derived and explained for the economy with tourism. These positive rates are confirmed by simulations.

Originality/value of chapter – The presence of tourism can alter the welfare implications of the traditional trade policy.

Rules of origin (ROOs) are often cited as major trade barriers even after tariff barriers are removed with the formation of preferential trade agreement (PTA) as shown in a survey result that a large number South Korean firms in the textile industry give up utilizing tariff-free exports to the USA after the bilateral Free Trade Agreement (FTA) due to ROOs. The purpose of this paper is to examine the impact of ROOs on the equilibrium FTA regime and the welfare effects.

The authors determine the impact of ROOs on the equilibrium FTA regime based on an oligopolistic model where there are asymmetry in production technologies of intermediate goods and the capacity of outsourcing intermediate goods.

The authors demonstrate that ROOs are used as a protective trade policy against the FTA member country with an outsourcing option for technologically dominant intermediate goods.

The non-cooperative features of ROOs found in this paper necessitates the introduction of an international coordination mechanism to avoid the prisoners’ dilemma-type implementation of ROOs.

This paper provides a theoretical frame to analyze the protective effects of ROOs under PTAs.