AS

The US Politics of Protectionism

  • Why does the government sometimes support protectionist tariffs even when US consumers lose more than producers gain?
    • The cost of protectionism are usually spread over millions of consumers while the benefits flow to a small number of producers
    • The cost to each consumer is small, but gain to each producer is large
    • Ex: sugar quota costs every person in the US about $8 per year but it benefits a small number of sugar producers by millions of dollars per firm
    • The small cost per sugar consumer means that it’s not worth knowing about
    • The US has a comparative advantage in goods and services produced by skilled workers, and a comparative disadvantage in goods and services produced by unskilled workers
    • Increase international trade increases the demand for skilled workers and decreases demand for unskilled workers
  • More educated workers tend to support free trade more than do less educated workers
  • When we combine a trade war with the fact that protectionism reduces world income by pushing countries away for their comparative advantage, it’s likely that even many low-skilled US workers will lose from greater protectionism
  • All change generates losers and winners
  • If we want the gains from a growing and dynamic economy, it’s better to adjust to shocks than to try to prevent change