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Protectionist Tariffs

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Turk posted on Wed, Jul 8 2009 5:34 PM

I was reading "Economics in one lesson" and in the chapter entitled "who is protected by tariffs?" there was a great case against protectionist tariffs. From what i understood, it goes a something a little like this: The money that is used in creating barriers to imports may indeed save jobs in one particular domestic industry BUT other domestic industries suffer (and therefore jobs are lost) as consumers are deprived of money that they would have otherwise spent on those other domestic industries.(i hope this is correct, if not please say so)

My question is; if there was complete free trade, then what's to stop people from spending ALL their money on imports? Wouldn't this mean that all domestic industries would suffer? So in the example the book gives (the one above) consumers are deprived of money they would have spent on other DOMESTIC industries. my question is - what if they did not? what if they would have spent that money on other imports? what would happen to domestic jobs then? I hope this makes sense.


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How exactly do you propose the residents of a particular country will get the resources to import goods and services from a foreign country?


Unless the residents produce something of value themselves, they will not have the resources to import goods and services. Therefore, without some sort of 'domestic industry', I see no way that a country can simply continue to import g/s from a foreign country.

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i believe milton friedman had a good quote about the fears of importation:


"What would the people who sold us goods do with the money? They'd get dollars. What would they do with the dollars? Eat them?! "

-hint, they cant use us dollars to buy goods in their own country


even if the entire world used a single currency(like gold), until we invent teleportation, the costs of transportation will always provide an incentive to produce some of what we consume in our own country, which will provide unemployment. this is why toyota has factories in the us even though taxes, regulations, and unions increase the cost of production here.

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Bogart replied on Thu, Jul 9 2009 11:52 AM

There is a little known law of economics: The law of comparative advantage.  It states that no matter how much of an advantage one supplier has over another, the second supplier will still be able supply some stuff because it is not logically profitable for the first supplier to do so.  The best example of this is the large construction equipment business.  The US companies in that area seem to survive in very good shape despite the amount of competition from other suppliers from all over the world.


There is also another force at work and that is insourcing.  There are vastly more jobs in the US that are insourced from foreign companies than outsourced to foreign companies.  The auto business is a good example of this.  Despite the manufacturing facilities in Japan, Korea and elsewhere, there are large numbers of people in the insourced automotive businees.  Most auto designs come from the US as do much of the production technology.  Furthermore almost all of the sales and marketing of auto is done domestically.

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