Pugel_14_SG_CH10 - CHAPTER 10 ARGUMENTS FOR AND AGAINST...

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CHAPTER 10 ARGUMENTS FOR AND AGAINST PROTECTION Objectives of the Chapter This chapter extends and qualifies the arguments presented in Chapters 8 and 9. The arguments for and against a tariff are more varied than those presented earlier. Specifically, the chapter puts into perspective the limits of the case for free trade by identifying the conditions under which imposing a tariff is beneficial. There are valid arguments for the “optimal tariff” and “second-best” cases. A tariff is particularly desirable (up to a limit) when the defect present in the economy relates to international trade. In general, free trade is the best policy for the world as a whole, but we have seen that not everyone gains from the opening of trade between countries; losing groups will form powerful lobbies against trade unless the free-rider problem stops them. In addition, the government may see trade protection as a way to address domestic difficulties such as unemployment or income inequality. In these cases, however, tariffs are second-best solutions. After studying Chapter 10 you should be able to identify 1. where the limits to the case of free trade lie. 2. when imposing a tariff is sometimes better than doing nothing. 3. how some other policy is usually better than the tariff in the “second-best” cases. 4. the limits within which the infant industry argument is valid. 5. the dying industry, developing government, national pride, income redistribution, and national defense arguments for import protection. 6. the factors that make an industry more or less likely to receive protection. Important Concepts Adjustment assistance: Government financial assistance to relocate and retrain workers (and firms) for re-employment in expanding sectors and away from sectors that are declining as a result of import competition. Distortions:
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This note was uploaded on 02/18/2010 for the course ECON 343 taught by Professor Dblack during the Fall '09 term at University of Delaware.

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Pugel_14_SG_CH10 - CHAPTER 10 ARGUMENTS FOR AND AGAINST...

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