Government Influence on Trade

Tariffs -- Part 1GOVERNMENTAL INFLUENCE ON TRADE OVERVIEW Chapter 6 really concerns one question - Why do all governments engage in the regulation of international trade? Given the results of international trade theory, particularly those of Adam Smith and David Ricardo, it is clear that government involvement in trade simply raises prices and reduces supply. Therefore, why would any government want to have an influence on trade? REASONS FOR PROTECTIONISM Protection of domestic industries, employment, capital, and technology. Encouragement of domestic ownership and control. Improvement of the balance of trade. Protection of sovereignty and national security. Protection of domestic culture(s) and social values. ARGUMENTS FOR GOVERNMENT INTERVENTION The Unemployment Argument = simple protection of employment The Argument -- We are losing jobs and workers vote. Therefore, protect these jobs or we will vote you out of office. This argument was at the core of organized labor's opposition to a free trade agreement with Mexico. It is also at the core of the European auto industry position vis-à-vis autos imported from Japan. At the very core of the Unemployment Argument is the presumed inability of workers to adapt to new circumstances, i.e., change comes very quickly, but humans change very slowly. Therefore, a society should protect workers at least until they retire. A solution that has been adopted in various industries is early retirement. For example, many major newspaper publishers (including the New York Times) gave their hot-lead printers early retirement so that the papers could shift to the new and more efficient photo-offset technology. Note that this plan

natural resources,

works best when the workers have blocking power, i.e., property rights in their jobs. Structural unemployment is unemployment resulting from shifts in market demand, and usually results from technological change. For example, the cowboy was rendered structurally unemployed by the