Free Capitalist Network - Community Archive
Mises Community Archive
An online community for fans of Austrian economics and libertarianism, featuring forums, user blogs, and more.

2 issues/questions on Free Trade vs Protectionism

rated by 0 users
Not Answered This post has 0 verified answers | 0 Replies | 1 Follower

Not Ranked
73 Posts
Points 2,395
LandJ posted on Sun, Mar 12 2017 6:38 PM
Hello everyone. I have two questions on economics and especially on International Trade: Free trade vs Protectionism. I would appreciate it if you could help me understand. (they are beginner's questions) - Subject A Suppose there are two countries, USA and Japan who produce the same cars at market price 10,000$. US government impose a 10% tariff on Japanese cars to protect US car industry and now Japanese cars cost 11,000$. Now Americans buy american cars because they are cheaper. Market law says, that when supply decreases the price increases. So, US producers will increase their prices up to 11,000$ for more profit. Thus, US consumers are harmed by this tariff. My Question: Why US producers (after the decrease of competition) will increase the price of their cars? If they rise the price of their cars from 10,000$ to 11,000$ they will immediatelly put again in the game of competition the Japanese car producers (although their cars have been imposed with tariffs). And the market share will be shared among US and Japan car producers again. So, how we are sure that the market law (price increases when supply decreases and demand remain stable or increases), will work in this case? - Subject B I watched a video of Milton Friedman who said that it is good for USA to import Japanese products, because Japanese who now will have in their hands american dollars, will use them to buy/import US products. In other words, imports of Japanese products to USA, in the long run create/fund the exports of US products to Japan. My question: Why the Japanese producer who exported his products to USA, having american dollars will use them to buy/import US products? He can go to a bank in his place, exchange the american dollars with Yen and buy Japanese products. So, how Friedman is so sure that the Japanese exporter later will buy/import US products, and thus stimulate US exports? Thank you all.
  • | Post Points: 5
Page 1 of 1 (1 items) | RSS