Tyler—Econ Ch 20 Part 2
Arguments that are in support of restricting imports:
*Infant Industry Argument *Anti-dumping Argument *Environmental Protection Argument *Unsafe Consumer Products Argument *National Interest Argument
Examples of recalls: *
2007 - Mattel recalled nearly two million toys imported from China due to high levels of lead in the paint & loose parts. 2013 - Japan blocked imports of U.S. wheat because of genetically modified (GMO) wheat in shipments.
Why would foreign firms export a product less than its cost of production, taking a loss?
Innocent explanation Sinister explanation aka predatory pricing.
Argument for shutting out imported products unsafe for consumers.
WTO says: • Countries can set their own safety standards. • Regulations must be based on science. • Should not arbitrarily or discriminate between countries
national interest argument *
Weak argument... there are compelling national interests against this such as... • oil • special materials/technologies with national security applications
Which of the following is the best example of a tariff?
a $150 fee imposed on all imported residential air conditioners
The United States is not...
a world leader in government laws to protect employees...one of 41 countries that does not provide mandated paid leave for new parents.
According to the theory of comparative advantage...
all countries benefit from specialization and trade: Free international trade raises incomes and improves standard of living.
Common belief among economists
better to embrace the gains from trade, than it is to cut off trade
The Infant Industry Argument *
block imports for a limited time, to give an infant industry time to mature, before it starts competing on equal terms in the global economy
Anti-dumping laws *
block imports sold below the cost of production by imposing tariffs that increase the price of these imports to reflect cost of production.
Innocent explanation
demand and supply set market prices, not the cost of production.
Sinister explanation
dumping is part of a long-term strategy to drive out the domestic competition, then raise prices
Protection is required even during peacetime to
ensure their availability
Although economists disagree about many things, the vast majority of them favor
free trade
Over time the "average" person
gains from international trade
International trade *
helps consumers but hurts firms that are less efficient than their foreign competitors.
disruptive market change *
innovative new product or production technology which disrupts the status quo in a market
Economists often treat the national interest argument skeptically because
lobbyists and politicians can tout almost any product as vital to national security
Although protectionists argue for the protection of workers from foreign competition, it is unlikely to cause...
net job loss in an economy as workers are absorbed into expanding sectors over time
Threat of blocking international trade can
pressure low-income countries for higher environmental standards
Race to the bottom
production locates in countries with lowest environmental standards, putting pressure on all countries to reduce environmental standards.
Globalization will force *
some firms to lay off workers...increased trade usually increases jobs in other industries
Free trade refers to trade between countries
that is without restrictions
Protectionism reshuffles jobs from
unprotected industries to protected industries, but doesn't create new jobs
More reasonable strategies for the U.S. to protect cutoff of foreign oil:
• Import 100% of petroleum supply now/save domestic oil resources for foreign supply cut off. • Discourage use by raising taxes on oil/seek out alternatives to oil.
Workers in many low-income countries around the world:
• labor under conditions illegal for workers in the U.S. • paid less than the U.S. minimum wage. • have working conditions unpleasant or unsafe.
In times of national crisis or war the United States must be able to rely on key domestic industries:
•Oil •Steel •Defense •Food