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One final reason why economists often treat the national interest argument    skeptically is that almost any product can be touted by lobbyists and politicians as vital to national security. In 1954, the United States became worried that it was importing half of the wool required for military uniforms, so it declared wool and mohair to be “strategic materials” and began to give subsidies to wool and mohair farmers. Although wool was removed from the official list of “strategic” materials in 1960, the subsidies for mohair continued for almost 40 years until they were repealed in 1993, and then were reinstated in 2002. All too often, the national interest argument has become an excuse for handing out the indirect subsidy of protectionism to certain industries or companies. After all, decisions about what constitutes a key strategic material are made by politicians, not nonpartisan analysts.

Key concepts and summary

There are a number of arguments that support restricting imports. These arguments are based around industry and competition, environmental concerns, and issues of safety and security.

The infant industry argument for protectionism is that small domestic industries need to be temporarily nurtured and protected from foreign competition for a time so that they can grow into strong competitors. In some cases, notably in East Asia, this approach has worked. Often, however, the infant industries never grow up. On the other hand, arguments against dumping (which is setting prices below the cost of production to drive competitors out of the market), often simply seem to be a convenient excuse for imposing protectionism.

Low-income countries typically have lower environmental standards than high-income countries because they are more worried about immediate basics such as food, education, and healthcare. However, except for a small number of extreme cases, shutting off trade seems unlikely to be an effective method of pursuing a cleaner environment.

Finally, there are arguments involving safety and security. Under the rules of the World Trade Organization, countries are allowed to set whatever standards for product safety they wish, but the standards must be the same for domestic products as for imported products and there must be a scientific basis for the standard. The national interest argument for protectionism holds that it is unwise to import certain key products because if the nation becomes dependent on key imported supplies, it could be vulnerable to a cutoff. However, it is often wiser to stockpile resources and to use foreign supplies when available, rather than preemptively restricting foreign supplies so as not to become dependent on them.

Problems

You have just been put in charge of trade policy for Malawi. Coffee is a recent crop that is growing well and the Malawian export market is developing. As such, Malawi coffee is an infant industry. Malawi coffee producers come to you and ask for tariff protection from cheap Tanzanian coffee. What sorts of policies will you enact? Explain.

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The country of Pepperland exports steel to the Land of Submarines. Information for the quantity demanded (Qd) and quantity supplied (Qs) in each country, in a world without trade, are given in [link] and [link] .

Pepperland
Price ($) Qd Qs
60 230 180
70 200 200
80 170 220
90 150 240
100 140 250
Land of submarines
Price ($) Qd Qs
60 430 310
70 420 330
80 410 360
90 400 400
100 390 440
  1. What would be the equilibrium price and quantity in each country in a world without trade? How can you tell?
  2. What would be the equilibrium price and quantity in each country if trade is allowed to occur? How can you tell?
  3. Sketch two supply and demand diagrams, one for each country, in the situation before trade.
  4. On those diagrams, show the equilibrium price and the levels of exports and imports in the world after trade.
  5. If the Land of Submarines imposes an anti-dumping import quota of 30, explain in general terms whether it will benefit or injure consumers and producers in each country.
  6. Does your general answer change if the Land of Submarines imposes an import quota of 70?
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References

Kohut, Andrew, Richard Wike, and Juliana Horowitz. “The Pew Global Attitudes Project.” Pew Research Center . Last modified October 4, 2007. http://www.pewglobal.org/files/pdf/258.pdf.

Lutz, Hannah. 2015. “U.S. Auto Exports Hit Record in 2014.” Automotive News. Accessed April 1, 2015. http://www.autonews.com/article/20150206/OEM01/150209875/u.s.-auto-exports-hit-record-in-2014.

Questions & Answers

what is choice?
Hilma Reply
Suppose a country with fixed quantities of resources is able to produce any of the following combinations of bread and ovens;
opoku Reply
willingness and ability to buy at a market price at time specified
Joel Reply
demand
JONZY
discuss the meaning of demand in economic
Usman Reply
the willingness and ability to buy a commodity
Rifat
just try to elucidate
Aadil Reply
just try to elucidate something
Aadil
what
Ashfaq
would you explain
azad
what is elasticity, perfectly elastic, inelastic
Rue Reply
When 01 the demand is elastic
Myriam
when demand curve is horizental the curve is perfectly elastic ...when demand curve is vertical then it is perfectly inelastic
Ashfaq
elasticity means that percentage change in quantity demanded due to percentage change in price
Ashfaq
Refers to the level or degree of sensitivity quantity demanded has in my relationship to a change in price
JONZY
introduction to elasticity of demand
Dalhatu Reply
what is price commonly called in the labour market
AYUBA Reply
wages?
penn
Explain demand curve
Ibrahim
price in labour market is Marginal Physical Productivity...
azad
what is the price of elasticity of demand
Mahesh Reply
it is the responsiveness of a certain good. and it is calculated as follows: PED=%change in quantity demanded /%change in price
Rue
what is per capita income
Kafwimbi Reply
what is GDP of an economy
Kafwimbi
Gross Domestic Product
grace
GDP=C+I+G(X-M) C= CONSUMPTION I=INVESTMENT G=GOVERNMENT EXPENDITURES (X-M) = export - import
Sayali
What are the factors that drive exchange rates?
MacFisto
Why is scarcity the main problem of economics
Nicholas Reply
Because of unlimited needs and wants demanded by the household
Jeremiah
what is GDP deflator?
saud
Because of endless needs and wants required to achieve maximum satisfaction possible by consumers
Nobert
how to calculate price elasticity demand?
Precious Reply
change in quantity over quantity divided by change in price over price
Pele
Percentage change in quantity demanded over the percentage change in price
Nobert
if the local pizzeria raises the price of a medium pizza from Rd.60to 100 & quantity demanded falls from 700 pizzas a night to 100 pizzas at night , the price elasticity of demand for pizzas is:
Lakshmi Reply
1.2. Measurement of price Elasticity of demand
Lakshmi
0.11
Nobert
Lakshmi tell me how wrong am I coz I see you've got different answer from mine?
Nobert
_1.28
Melvis
explain how price and output are determind by a discriminating monopolist
Hiraj Reply
price and output determined through interaction between demand curve and supply curve...
Ajay
how do I view the graphs
Patricia Reply
how do I open the links
Patricia

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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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