Lecture Notes on International Trade: Arguments for Limiting Trade

Introduction

• International trade is a controversial topic with many arguments for and against it.
• Common arguments for limiting trade:
  • Trade reduces jobs in the U.S.
  • Ethical concerns about trading with countries using child labor.
  • National security concerns necessitate keeping certain jobs and industries at home.
  • Beneficial spillovers from keeping key industries domestically.
  • Strategic trade protectionism to increase U.S. well-being.

Trade and Jobs

• Lowering tariffs increases imports, reducing jobs in import-competing industries.
• Imports are paid for by exports, leading to job shifts from import-competing to export industries.
• Jobs reduction in low-skill sectors and growth in high-skill sectors can occur.
• Economy growth involves constant job creation and destruction due to preferences and technology changes.
• Job destruction can indicate progress, e.g., inventions like the light bulb destroying old industries.

Child Labor

• Declines as countries become wealthier.
• Economic growth is critical in reducing child labor.
• Banning child labor or refusing trade with countries that use it can have unintended consequences, such as lower wages and increased poverty.
• Better alternatives include supporting education and providing incentives for schooling in poorer countries.

National Security

• Certain industries should be protected for national security, but this argument is often misused.
• Example of misuse: protecting Angora goats claiming military necessity.

Key Industries

• Popular argument that some industries are critical due to their spillover benefits.
• Difficult to determine which industries are most important.
• Historical examples show unexpected industries can be highly productive, e.g., Walmart.

Strategic Trade Protectionism

• Theoretical potential to gain more trade benefits by limiting or taxing exports.
• Success depends on few substitutes and avoiding retaliation.
• Risks include reducing market size and shrinking world trade if all countries engage in similar tactics.

Conclusion

• Trade restrictions lead to resource waste by shifting production from efficient foreign producers to less efficient domestic ones.
• Restrictions limit consumer access to trade benefits.
• Free trade generally a robust policy; protectionism works only in limited cases.