A producer is likely to think i should lobby for

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Unformatted text preview: lobby for tariffs, because if I am effective, I will receive $400,000 more.” A consumer is likely to think, “Why should I lobby against tariffs? If I am effective, I will save myself only $2. It is not worth my lobbying to save $2.” In short, the benefits of tariffs are concentrated on relatively few producers, and the costs of tariffs are spread over relatively many consumers. This situation makes each producer’s gain relatively large compared with each consumer’s loss. Producers will probably lobby government to obtain the relatively large gains from tariffs, but consumers will not lobby government to avoid paying the small additional amount added by tariffs. 408 Chapter 15 International Trade and Economic Development ANSWER: In 2002, the federal government placed tariffs on imported steel. The steel tariffs were in response to what the domestic (U.S.) steel industry was asking for at the time. As a result of the tariffs, consumers ended up paying more for such goods as cars. A USA Today article stated the following about the tariffs: “The tariffs will undoubtedly be passed on to consumers, but the [Bush] administration did not estimate by how much. Critics say the action will raise prices to consumers on items ranging from cars, houses, and appliances. One critical study suggested the average family of four would spend up to $283 more a year.” In late 2003, the tariffs on steel that were imposed in 2002 were ended. QUESTION: Don’t tariffs sometimes save American jobs, though? Didn’t the steel tariffs save some American jobs? ANSWER: Yes, it is possible for tariffs to save some American jobs, but the question for an economist is: At what cost? For example, the Institute for International Economics estimated that the steel tariffs saved 1,700 jobs in the steel industry, but at the cost to consumers (in the form of higher prices) of $800,000 per job. In other words, U.S. consumers ended up paying $800,000 in higher prices for every one job they saved 15 (390-427) EMC Chap 15 11/18/05 9:12 AM Page 409 in the steel industry. Or look at it this way. The average job saved in the steel industry was a job that paid $50,000 to $55,000 a year. In short, tariffs ended up causing American consumers to pay $800,000 in higher prices in order to save a $50,000–$55,000 job. One of the lessons we introduced in the first chapter of this book is that economists want to look at the entire picture, not only part of it. Tariffs can save jobs, which is certainly part of the picture of tariffs. But another part is that tariffs drive up prices for consumers. Tariffs can also make it more expensive for other American producers to produce goods. For example, even though tariffs on steel might have helped the U.S. steel industry, they certainly hurt the U.S. car industry (because car producers buy steel). It is important, when discussing tariffs and quotas, to make sure to identify all of their effects. Tariffs and the Great Depression In January 1929, many members of Congress became disturbed over the increase in imports into the United States. Willis Hawley, the chairman of the House Ways and Means Committee, introduced a bill in Congress to deal with this apparent problem. It came to be known as the Smoot-Hawley Tariff Act, which proposed substantially higher tariffs on many imported goods. It was thought with higher tariffs on imported goods, Americans would buy fewer imports and more goods produced in the United States. This outcome, some thought, would be good for the country. Although the Smoot-Hawley Tariff Act was not signed into law until June 17, 1930, its passage was likely, and many people in the country suspected it would become law long before it did. Some people thought it would be bad for business in the United States. They thought that other countries would retaliate with their own high tariffs (which they did), and that global trade would diminish, thus hurting the U.S. econ- omy. (If other countries imposed high tariffs on “Trade barriers are chiefly U.S. goods, then Americans injurious to the countries would not be able to sell as imposing them.” much abroad.) — John Stuart Mill Some economists blame the sharp decline in the stock market in 1929—which some say dates the beginning of the greatest economic decline in the nation’s history, the Great Depression—on the foregone conclusion that Congress would pass, and the president would sign, the Smoot-Hawley Tariff Act. Many economists today believe that the act not only served as one of the catalysts of the Great Depression but also made the Great Depression last longer than it would have otherwise. Arguments for Trade Restrictions Do tariffs and quotas exist only because government is sometimes more responsive to producer interests than consumer interests? Not at all; they exist for other reasons, too. The National-Defense Argument It is often argued that certain industries— such as aircraft, petroleum, chemicals, and weapons—are necessary to the national defense and therefore deserve to be protected from foreign competition...
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This document was uploaded on 01/16/2014.

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