Free trade consists simply in letting people buy and sell as they want to buy and sell. Protective tariffs are as much applications of force as are blockading squadrons, and their objective is the same: to prevent trade. The difference between the two is that blockading squadrons are a means whereby nations seek to prevent their enemies from trading; protective tariffs are a means whereby nations attempt to prevent their own people form trading.

• Free trade consists simply in letting people buy and sell as they want to buy and sell. Protective tariffs are as much applications of force as are blockading squadrons, and their objective is the same: to prevent trade. The difference between the two is that blockading squadrons are a means whereby nations seek to prevent their enemies from trading; protective tariffs are a means whereby nations attempt to prevent their own people form trading.
• -Henry George, 1886

International Trade and Policy

• Comparative Advantage Review and Extensions
• World Production Possibility Frontier
• Effects of Trade

Common Trade Restrictions

• Tariffs – tax on transaction
• • Specific tariffs
  • Ad valorem tariffs
  • Revenue vs. Prohibitive Tariffs
• Quotas
• Loan Subsidies
• Domestic Content Limits
• Unique product/process regulations

Effects of trade restrictions

• inefficient welfare programs for the domestic producers
• Consumers
• • Suffer & pay
  • Costs spread-out
  • Politically quiet
• Producers
• • Large & focused benefits
  • Political “horse-trading” & lobbying

Quotas in Practice

• Producers lobby Congress for quotas
• • Reward domestic producers with higher prices
  • Reward foreign producers with the right to sell goods in US
• Lack of opposition from consumers
• • Diffuse benefits

Tarriffs vs. Quotas

• Tariff and quotas
• • identical effects on price
  • same change in quantity demanded
• U.S. consumers suffer loss of consumer surplus
• U.S. producers gain
• Who gets the additional revenue?
• • Tariff: government
  • Quota: producer w/ rights

Other Trade Restrictions

• Export Subsidies
• Low-interest loans
• Domestic Content Limits
• Unique industry/product regulations
• • • Health
    • Safety
    • technical standards may discriminate against foreign goods

Free-trade & Agreements

• Free Trade Zones
• • European Union
  • Bilaterals
• Agreements
• • GATT & WTO
  • NAFTA
  • Paris Convention
  • FTAA
  • CAFTA

Rhetoric & Trade

• Supporters of Protectionism:
• • Rarely say so
  • “Fair” Trade
  • “Competitiveness”
• Much so-called “Free Trade” isn’t

Arguments “Supporting” Trade Restrictions

• National Defense Argument
• Infant Industry Argument
• Antidumping Argument
• Jobs and Income Argument
• Declining Industries Argument

Additional Problems with Trade Restrictions

• Often requires protecting downstream stages of production
• Wasted resources seeking favored protections
• Other countries often retaliate,
• • reducing gains from trade
• Costs of enforcment
• Social & Political Risks