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 Created: Jan 2007 by Jim Luke.

International Trade and Policy Comparative Advantage Review and Extensions World Production Possibility Frontier Effects of Trade Created: Jan 2007 by Jim Luke.

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 Created: Jan 2007 by Jim Luke.

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 Created: Jan 2007 by Jim Luke.

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 Created: Jan 2007 by Jim Luke.

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 Created: Jan 2007 by Jim Luke.

Other Trade Restrictions Export Subsidies Low-interest loans Domestic Content Limits Unique industry/product regulations Health Safety technical standards may discriminate against foreign goods Created: Jan 2007 by Jim Luke.

Free-trade & Agreements Free Trade Zones European Union Bilaterals Agreements GATT & WTO NAFTA Paris Convention FTAA CAFTA Created: Jan 2007 by Jim Luke.

Rhetoric & Trade Supporters of Protectionism: Rarely say so “Fair” Trade “Competitiveness” Much so-called “Free Trade” isn’t Created: Jan 2007 by Jim Luke.

Arguments “Supporting” Trade Restrictions National Defense Argument Infant Industry Argument Antidumping Argument Jobs and Income Argument Declining Industries Argument Created: Jan 2007 by Jim Luke.

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 Created: Jan 2007 by Jim Luke.