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Abstract:
The recent theoretical literature on strategic trade policy suggests that government intervention in international trade has the potential to be welfare-improving, thus bringing into question the traditional economic case for free trade. Economists in the nineteenth century also argued about whether theoretical justifications for tariffs compromised the case for free trade. This paper discusses two older debates somewhat related to the current focus on strategic industries and reciprocity, and concludes with an observation about how developments in economic theory affect economists' view of policy.
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