Thursday, April 28, 2016

Protectionism vs. Trade

Arguments for protectionism

Military Self-Sufficiency
  • not economic, political and military
  • need to preserve industries that are essential for national defense 
  • point: when you do this, you will incurs economic costs 
  • what counts as "essential?"
Diversification for Stability
  • common in economies dependent on one or two products (Saudi Arabia)
  • need to diversify at home because changes to the dependent product markets can be devastating
  • not relevant to the US
Infant Industry 
  • need to shelter young industries temporarily until they compete globally 
  • which industries will be capable of competing in the future? 
  • protection may not be temporary
Protection Against Dumping 
  • dumping: the sale of a product in a foreign country at prices either below cost or below the prices commonly charged at home.
  • tactic for driving competitors in other countries out of business. 
  • US imposes antidumping duties where it find it
  • hard to differentiate between dumping and competition
Increased Domestic Employment
  • tariff to "save our jobs"
  • common during recessions 
  • idea is to protect certain jobs by blocking foreign imports
  • jobs are also created, only some gone 
  • maintaining status quo by making neighbors poorer 
  • trade wars likely 
Cheap Foreign Labor
  • domestic workers must be shielded from counties where wages are low 
  • ignores the fact that trade benefits both parties
  • ignores comparative advantage
  • ignores differences in labor productivity
Big Picture: Protectionist actions will benefit some part of the economy at the expense of the rest of the economy, and in some cases, the rest of the world. 

Let's talk about labor in the third world