Pitfalls in the Theory of International Trade Policy: Concertina Reforms of Tariffs and Subsidies to HIgh-Technology Industries

This paper explores the links between international trade theory and the practice of trade and industrial policy in open economies, with special attention to three areas where theoretical lessons have been misunderstood in policy debates. It argues that the ‘concertina rule’ for tariff reform justifies reductions in high tariffs, but not moves towards uniformity and particularly not increases in low tariffs. It shows that the basic principles of tariff reform are the same in unilateral, multilateral and customs union contexts. Finally, the paper suggests that the theory of strategic trade policy does not justify subsidies to high-technology industries.