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Note - Protectionism - ADMS 3585 Protectionism Diane...

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. .. ADMS 3585 Protectionism - Diane Jurkowski, 200 1 [ 361- 3 7f) Protectionism is government policies that ~ 9 1 a n d producers from foreign - competition. One of the best examples of protectionism is the i po i -.en of t a f s on foreign imports. For example, a Canadian tariff of 15,0/ o an automobile that costs $5000 in a foreign country means that a tax $I.&, or custom duty of $750 will be kvi on the car when it is imported to Canada. The Canadian price will be $5750 and Canadian producers of similar vehicles who can operate profitably at a price of $5750, but not $5000, will be able to compete with imports in the Canadian market. Producers dependent on protection cannot normally export, since their costs are above world prices and they, therefore, depend almost entirely on the home market. The effect ofthe 1965 Canada-U.S. Automotive Product Agreement (the Auto Pact) is that automobiles produced in Canada can be exported to the United States, although the price in Canada is higher. Trade restrictions have been the most critical policy that governments have used as an expression of protectionism. Governments restrict international trade in order to protect domestic industries from foreign competition. The restriction of international trade is referred to as protectionism. There are two main d by governments: .&ffLs a tax that is imposed by the importing country when a good crosses an international boundary. A non-tariff barrier is any action other than a tariff that restricts international trade. Examples of non-tariff barriers are quantitative restrictions and licensing regulations limiting imports. Economic analysis shows that economic losses fiom a tariff exceed its benefits. Theoretically, a '-.-/ tariff is wasteful becaus 't 1 ads to _substitution of higher-cost home and production for lower-cost tLk i d ~ f t a r i f f s were r& rq&$$er and capital in protected industries would shift to other 'employers, at homeo~abro-one, in their role as consumers, would gain fiom loweririces. -- Owners having to change the employment of their resources would suffer losses: landowners, and shareholders in the contracting industries would lose more as owners than they would gain as consumers. Specialized workers in the contracting industries would probably face retaining or lower-paying jobs. Others would bear the "traditional" costs of reorganizing their economic lives. Probably the many net winners would each gain a relatively small amount, while the relatively few net losers would suffer fairly heavy losses. Nevertheless, in principle it should be possible for a government to compensate losers and still produce a net social "profit" by repealing tariffs. kyF The debate about protectionism has revolved around attempts to find an intellectually respectable rebuttal to the ec nomic argument, but none has been found. Public discussion of protectionism would be better if its [email protected]#&ts w m e that, although it involves economic costs, these are outweighed by non- economic benefits. The in !
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