dollars. To do this,
foreigners will export goods to the U.S. for which they have a competitive advantage. These
goods are cheaper for U.S. consumers, which benefits the U.S. consumers at the expense of
U.S. producers of those products. The net result is a benefit to the U.S. and world economies.
c: Explain why nations adopt trade restrictions.
Some reasons given for trade restrictions have some or partial validity:
National defense argument: Some industries are highly sensitive to national security and
should therefore remain in the country.
Infant industries argument: These industries should be protected for a time while they
develop and reduce costs. One problem with this is that it is often hard to remove these
tariffs.
Anti-dumping argument: Tariffs are used to prohibit foreign firms from selling products in the
country at below cost in an attempt to gain market share.
Other reasons for trade restrictions are of more questionable validity:
Do trade barriers protect jobs? Part of the popularity of trade restrictions stems from their
ability to protect easily identifiable jobs and the high wage levels in these jobs. But, in the long
run, however, trade restrictions cannot protect the net number of jobs in the country.
Do trade restrictions create jobs? In the short run maybe, but in the long run, No! Trade
restrictions prevent your trading partners from developing the purchasing power needed to
buy import goods from you, thus depressing your own export industry.
Does trade with low-wage countries depress wage rates in high-wage countries? No!
The belief that trading with low-wage countries depresses wages is based on a
misunderstanding of the law of comparative advantage. A high hourly wage does not
necessarily mean high per unit labor costs.
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