[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

PRICE (p)
p* + t
p*
Figure 19.4
Q s
EFFECT OF TARIFFS
Q s
'
Imports
after
tariff
Q'
c
Initial
imports
Supply
curve
QUANTITY (Q )
Q c
Demand
curve
A small country faces a horizontal supply curve for a good at
the international price, p*. In the absence of tariffs, the price
in the country will be p*. The country will produce Q s (the
quantity along the supply curve corresponding to p*), consume
Q c (the quantity along the demand curve corresponding
to p*), and import Q c – Q s . A tariff at the rate t increases the
price in the country to p*+ t, lowers aggregate consumption
to Q’ c (the quantity along the demand curve corresponding to
p*+ t), and increases domestic production to Q’ s (the quantity
along the supply curve corresponding to p* + t). Domestic
producers are better off, but consumers are worse off.
Opponents of free trade are not swayed by these arguments,
but instead stress the costs to workers and communities as particular
industries shrink in response to foreign imports. The textile
worker in North Carolina who loses his job as a result of imports of
inexpensive clothing from China cannot instantly convert himself
into a computer programmer in California or an aircraft engineer
working for Boeing. But the fact is that jobs are being destroyed
and created all the time, irrespective of trade. Over the long run, the
increased demand for computer programmers and aircraft engineers
leads to higher salaries for those workers, thereby strengthening
the incentives for young workers to gain the skills needed for
these jobs and for others to relocate to areas where new jobs are
being created. The declining demand for textile workers lowers
salaries for textile workers, reducing the incentives for workers
to remain in that industry. The United States is characterized by
a high degree of labor mobility, and as jobs are created in one
part of the country and disappear in other parts, individuals and
families often move to seek new employment opportunities.
On balance, the country benefits from these changes, but the
benefits are not distributed evenly. The unemployed textile worker
sees only the economic hardship she faces and the cost of free trade.
For this reason, many economists argue that policies must be implemented
to help retrain and relocate workers displaced by trade so
that they too can share in the benefits that accrue from international
interdependence. To the extent that such assistance increases
the number of winners, it should reduce opposition to trade.
While the perceived costs of economic interdependence cannot
be ignored—especially when they become the subject of heated
political debate—the consensus among the vast majority of economists
is that the country as a whole benefits from freer trade.
We can summarize this central tenet as follows: There are gains from voluntary
exchanges. Whether it occurs between individuals or across national borders, voluntary
exchange can benefit all. Trade enables parties to specialize in activities in which
they have a comparative advantage.
Trade Policies
In spite of the gains from trade, countries have imposed a variety of barriers to it.
In the remainder of this chapter, we explore some of the common trade barriers and
the major initiatives to remove them.
COMMERCIAL POLICY
Countries that have no barriers to trade are said to practice free trade, but most
countries engage in some form of protectionism—that is, in one way or another they
434 ∂ CHAPTER 19 INTERNATIONAL TRADE AND TRADE POLICY