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Reader Notes - 1 Meredith Huber Reader Notes KRAUSS How...

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1 Meredith Huber Reader Notes KRAUSS, “How Nations Grow Rich” Free trade is fair trade to the domestic consumer —consumer based standard is the only relevant equity standard in free enterprise economy Protectionism and restrictions hurt countries FALSE ARGUMENTS FOR PROTECTIONSIM o The “Big Lie” of Dumping —foreigners sell below cost only to drive out domestic competition o Cheap Labor Fallacy —advanced industrial countries cannot compete against cheap foreign labor so there is a need for protectionism (Krauss argues that cheap labor actually helps the more advanced countries because there is a relocation of labor from lower to higher skills—it allows for advanced economies to concentrate in production of high skilled goods) o Unemployment Fallacy: Protectionism creates employment and free trade creates unemployment. Trade restrictions can increase employment in the protected industry but increased employment in the protected industry comes at the expense of economic decreases elsewhere. Krauss argues that national income is reduced by protection, Labor immobility ca not be blamed on free trade—many times it is the result of government policy that restricts mobility—trade unions produce a burden on the economies of industrialized nations o Infant Industry Argument: New industries that show promise of future competitiveness should be protected in early noncompetitive stages to insure their short run survival Krauss argues that “infants never grow up” and government subsidies decrease the amount of innovation Krauss rejects this argument: 1) Governments have no skill in picking winners and avoiding loers 2) The effect of protection robs the competitive industry its incentive to innovate
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2 o Neo-Mercantilist Trade Surplus Fallacy: Only legitimate function of trade policy is to generate a trade surplus—trade surplus gives the surplus nation power to buy the real and financial assets of foreign countries Economists believe that trade policies increase a nations standard of living Krauss argues that protection does not affect the balance of trade—a critical determinant of the nation’s trade balance is its savings rate o Cheap Foreign Currency: Fear that devalued foreign currency gives that country an unfair competitive advantage Legitimate Arguments For Protectionism o 1) National Security o 2)”Terms of Trade” Argument Beyond Doha Doha in isolation cannot change the world economic system—negotiations were about “bound’ tariff rates—but it is ACTUAL trade barriers that people worry about, not the maximum permitted Doha was the first international forum in which China, Brazil and India have had a role as
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Reader Notes - 1 Meredith Huber Reader Notes KRAUSS How...

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