Book contents
- Frontmatter
- Contents
- List of contributors
- Preface
- 1 Protectionism and world welfare: introduction
- I The new protectionism: an overview
- II Trade theory, industrial policies, and protectionism
- III Exchange rates and protectionism
- 10 Floating exchange rates and the new interbloc protectionism: tariffs versus quotas
- 11 The theory of tariffs and monetary policies
- 12 The economics of content protection
- 13 The relationship between exchange-rate variability and protection
- IV The new protectionism in the world economy
- Author index
- Subject index
10 - Floating exchange rates and the new interbloc protectionism: tariffs versus quotas
Published online by Cambridge University Press: 18 September 2009
- Frontmatter
- Contents
- List of contributors
- Preface
- 1 Protectionism and world welfare: introduction
- I The new protectionism: an overview
- II Trade theory, industrial policies, and protectionism
- III Exchange rates and protectionism
- 10 Floating exchange rates and the new interbloc protectionism: tariffs versus quotas
- 11 The theory of tariffs and monetary policies
- 12 The economics of content protection
- 13 The relationship between exchange-rate variability and protection
- IV The new protectionism in the world economy
- Author index
- Subject index
Summary
Introduction
I regard as a key advantage of free exchange rates the likelihood that they will lead to freer world trade, will promote a dismantling of exchange controls and import quotas and a reduction of tariffs.
(Milton Friedman, 1967, p. 71)The removal of the balance-of-payments (objective) is an important positive contribution that the adoption of flexible exchange rates could make to the achievement of the liberal objective of an integrated international economy.
(Harry Johnson, 1971, p. 210)Earlier arguments in defense of floating exchange rates often contained high hopes that by allowing the exchange rate to adjust naturally in response to the ebb and flow of international payments, there would be no need for the government to intervene to correct balance-of-payment disequilibria. International payments adjustment would become virtually automatic. This was taken to imply, among other things, that there would be less likelihood that protectionist policies such as tariffs and quotas would be used. In other words, floating exchange rates should lead to free trade, or at a minimum, freer trade within the world economy.
Behind the earlier textbook arguments for the linking of free trade to floating exchange rates were two closely related assumptions. First, it was presumed that exchange rates would adjust toward market equilibrium in a smooth and orderly fashion. Milton Friedman argued that destabilizing speculators would on average incur losses while stabilizing speculators made profits – thus ensuring that stabilizing speculation would predominate.
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- Information
- Protectionism and World Welfare , pp. 221 - 243Publisher: Cambridge University PressPrint publication year: 1993
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