Protect Me?

Protect Me?

I’ve decided to write my paper on protection policies associated with trade. I should let you know that I’ve been reading the book “Trade Under Fire” and I agree that trade restrictions “overall” cause more harm than good. I’ll focus mainly on American policies regarding import tariffs and the impact it has on domestic producers and the domestic job market. My paper will be delivered as follows:

• Benefits from Trade

• Imports and Exports

• Tariffs on Imports

• The Job Issue

• Conclusion

Benefits from Trade:

As we’ve discussed in class, any time there is trade there are benefits. David Ricardo helped prove this with his Law of Comparative Advantage, which states: “Each country (involved in trading) should completely specialize in producing the good that it has comparative advantage in and then exchange the good with other countries to import goods it wants, if this is done each trading country gains from free trade.” This makes sense and every model we’ve done in class shows countries that trade with each other increase their consumption possibilities. This potential increase in consumption is known as “gains from trade”.

The gains from trade can be limited however by protectionist policies. These are policies put in place by governments to protect domestic firms from being hurt by free trade. There are numerous ways to enact protectionist policies for domestic firms. The main one I’m going to talk about is tariffs (taxes). But first let’s talk about the balancing act that takes place between imports and exports.

Imports and Exports:

In the book “Free Trade Under Fire” Douglas Irwin discusses the mutuality (balancing act) that needs to take place between imports and exports. Basically, pr...

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...cally been good for consumers and bad for firms. But when you factor in the job issue it frightens workers into thinking that if they don’t stick with their firm and fight imports they won’t have a job. Creating an alliance between firms and labor against imports. Nobody wants to be unemployed. And being told that “your job is obsolete but a different job that might pay more is on the way” doesn’t really cushion the blow of being laid off. But the overall picture (long run or long term effect) basically states that protection doesn’t benefit the world overall. This is in my opinion the strongest case for free trade.

References

Free Trade Under Fire: By Douglas Irwin Principles of Macroeconomics (Vijay Sharma): Notes by Jeff Maffitt

International Trade (Steven Beckman): Notes by Jeff Maffitt

International Finance (Suzanne Uroz-Korror): Notes by Jeff Maffitt