Affects of Trade Restrictions
International sanctions, tariffs, quotas, and trade restrictions encourage those in the domestic industries to produce less efficiently and make more money selling their goods. It also leads to less world output, less trade, less production, and less wages. (National Council, 2008) The benefit of specialization and free trade, including absolute and comparative advantages, is that world output is maximized and the world’s producers are producing at maximum efficiency. These sanctions, tariffs, quotas, and trade restrictions limit that maximum output and efficiency. For example, American shoemakers are not as efficient as Chinese shoemakers, so the U.S. may put a tariff on the Chinese imports and give a subsidy to the American shoemaker, where the American shoemaker may be able to work more efficiently in another industry or another faction of the shoe industry. These subsidies will allow the American shoemaker to produce at a lower cost, but possibly at the expense of quality. (National Council, 2008)
Agree with Trade Restrictions?
With absolute and comparative advantages and the positive effect they can have on maximum world output, maximum world consumption, maximum world efficiency, and maximum world prosperity, trade restrictions should not be utilized. There are, however, some positive things that do result from trade restrictions. However, the negative outweigh the positive. Trade restrictions may protect a smaller industry in the U.S., which is not operating at a comparative advantage as compared to a Chinese or Indian industry, but the people in the U.S. industry should focus on working in an industry in which the U.S. does have a comparative advantage in order to maximize world output and prosperity.
Trade Restrictions Successful?
Trade restrictions are successful in protecting an industry which would otherwise be at a comparative disadvantage. All American tax-payers must pay for the subsidies which go to these companies in these disadvantaged industries. Just because a group of people, which make up a company, decide to produce something which they cannot efficiently produce as compared to another country, we should not have to compensate them for their decision. They should decide to be innovative, produce something in which they do have a comparative advantage, and earn their compensation.
National Council on Economic Education. (2008). Limited trade – Economics lesson: Activity 1. Retrieved on December 7, 2008, from http://ecedweb.unomaha.edu/lessons/foegactivity1.htm
Topulos, K. (2008). NAFTA. Retrieved on December 7, 2008, from http://www.law.duke.edu/lib/researchguides/nafta.html