List five arguments often given to support trade restrictions. How do economists respond to these arguments?

List five arguments often given to support trade restrictions. How do economists respond to these arguments?

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September 3, 2023
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List five arguments often given to support trade restrictions. How do economists respond to these arguments?

Answer and ExplanationSolution by a verified expert

Explanation
The arguments provided for trade restrictions and the economists' responses to these argument usually are:

Jobs argument: Imports reduce the demand for the products of import-competing industries, which leads to a reduction in workers employed by the industry. The lobbyists' argument might bring this into consideration.
However, economists would argue that when a country trades, it specializes in the production of the goods it has a comparative advantage in. This results in an increase in jobs in the exporting industry. Thus, even though the import competing industry might lose jobs, it will be compensated by gaining jobs in exporting industries.
National security argument: Some goods are important for national security. Importing them might compromise the national security of the country. Domestic lobbyists might argue that a good is important to the national security of the country and its trade should not be restricted.
The national security argument of the lobbyists might be biased since they will benefit from trade restrictions. Thus, the decision regarding whether an industry is important for national security should be decided by the defense personnel, not the industry lobbyists.
Infant industry argument: When an industry gets set up, it needs protection from already mature foreign industries. The lobbyists might state that the domestic industry is a new industry and if given protection, will be able to compete with foreign firms in the future.
The infant industry rests on the assumption that the industry being protected will become profitable in the future. However, deciding which industry will be profitable in the future given sufficient protection is problematic. Moreover, protection once provided might be difficult to remove.
Unfair competition argument: Some countries subsidize the manufacturing of certain products, which gives them an unfair advantage over foreign competitors. The lobbyists of trade restrictions will argue for a ban on imports using this argument.
When a foreign country provides an unfair advantage to its exporting industry, it lowers the price of imports in the importing countries. If imports have an unfair advantage due to foreign government actions, it will lower the price of imports. Thus, Country A, as a whole, will benefit due to lower prices of subsidized imports.
Protection-as-a-bargaining-chip argument: Countries, as a way of bringing down trade restrictions by foreign countries, put up their own trade barriers to bargain with other countries. The lobbyists might encourage the government to restrict trade so that it can bargain with a foreign country to reduce trade restrictions.
If Country A's threats do not work, it might be faced with economic losses due to trade restrictions. Also, the reaction of other countries cannot be predicted. The other country might retaliate with its own trade protections, which will worsen Country A's economic conditions.
Sample Response
The arguments provided for trade restrictions and how economists respond to these are as follows:

Jobs argument: It is argued that imports will destroy jobs in the domestic import competing industry.
However, an economist would argue: By importing the goods at a lower cost, Country A consumers will experience an increase in purchasing power which will lead them to purchase more goods and services, many of which will be domestically produced. Country A will be able to produce jobs in industries whose products are exported by it to other countries in exchange for the imports.
National security argument: The lobbyists of trade restrictions argue that goods being imported is important for national security, which is why their trade should be restricted.
An economist would however argue: Companies producing the goods may be quick to use this argument to enable them to continue to produce the goods at a higher cost, thus harming consumers. Whether an industry is important for national security should be decided by defense personnel, not industry lobbyists.
Infant industry argument: The lobbyists of trade restrictions argue that the domestic industry is a new industry and if given protection, will be able to compete with foreign firms in the future.
However, economists would argue that deciding which industry will be profitable in the future, given sufficient protection, is difficult for government officials to determine. Moreover, protection once provided might be difficult to remove. If true that the companies will eventually be profitable, the firms should be willing to incur short-term losses. Do the same for 4 and 5; your answers are excellent but the student would benefit if the rebuttal immediately follows the argument.
Unfair competition argument: It is argued that foreign countries are supporting their industry by providing them subsidies or by making easier regulations. This will provide an unfair advantage to foreign firms.
However, economists would argue that Country A, as a whole, will benefit when foregin countries provide subsidies to their industry or make the regulations easier. As a result of subsidies and easier regulations, there will be a fall in the production costs of the industries in foreign countries, which will lower prices of subsidized imports from these countries to Country A.
Protection-as-a-bargaining-chip argument: It might be argued that by putting up trade restrictions, Country A might force other countries to bring down their trade restrictions.
However, an economist would argue: If Country A's threats do not work, it might face economic losses due to trade restrictions. Also, the other country might retaliate, which will worsen Country A's economic conditions.

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