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Unformatted text preview: Chapter 9 Governmental Effects on Trade Why Governments Intervene- economic arguments o 3 Major Arguments Governments Offer for Protectionism: Unemployment Argument Most common Attempts to protect employment will be made under great political pressures from unions and management industries Often successful argument Favors small groups over well being of the people as a whole May save jobs in an industry but have negative effects on related industries o U.S. Steel Industry, increase import tax to slow unemployment rates o Increasing cost to build cars, appliances and other products o Lost jobs due to increased price of steel outnumbered jobs saved in steel industry o 1 job protected for every 1.5-3 lost Infant Industry Argument New industry develops where it hasnt completed before Needs protections to allow its smaller companies to compete against larger international competitors Outside suppliers of a good are blocked, to allow small competitors to grow Leads to inherently flawed companies o Build management structures, distribution systems, salaries and the entire system based on prices above international norms o Must keep protections to survive Higher prices, but lower quality goods Industrialization Argument Similar to infant industry, but on a grander scale Usually made by smaller/poorer countries Argue that they are not sophisticated like large tracking countries, therefore need protection to catch up Less efficient and less creative companies Destroys economies over time Must have natural resources to survive under protection Worlds richest people live in the poorest countries Why Governments Intervene- non-economic arguments o Maintenance of essential industries A couple essential industries are heavily protected Military industry Food industries- Japans rice producers...
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This note was uploaded on 04/09/2012 for the course GEB 3375 taught by Professor Sweo during the Spring '08 term at University of Central Florida.
- Spring '08