Chapter Ten Arguments for and against Protection 支持和反对贸易保护的理由

1. Chapter Ten Arguments for and against Protection 支持和反对贸易保护的理由

2. 10.1 Introduction • Chapter objective • To analyze major arguments for protection and their effectiveness.

3. Contents • First best and second best • The specificity rule • Promoting domestic production or employment • The infant industry argument • The dying industry argument • The public revenue argument • Non-economic arguments • Politics of protection

4. 10.1 Effects and merits of a Tariff Protection Effects of a tariff protection • Increase in domestic production • Increase in employment of labor and other resources in domestic production • Decrease in consumption • Increase in government revenue • Redistribution of income

5. 10.2 The Ideal World of First Best Price (P) = Buyers’ private marginal benefit (MB) = Social marginal benefit (SMB) = Sellers’ private marginal cost (MC) = Social marginal cost (SMC)

6. 10.3 The Realistic World of Second Best Incentive Distortions MB ≠SMB MC ≠SMC Externalities Spillover effects

7. Effects

8. Government Polices toward Externalities • Two Approaches • The tax-or-subsidy approach A. C. Pigou • The property-rights approach • Ronald Coase

9. Arthur Cecil Pigou 1877-1959 Ronald H. Coase The Nobel Prizes 1991

10. The Specificity Rule 针对性（专向性）规则 It is more efficient to intervene directly at the specific source of distortion.

11. Implications of the specificity rule for trade policy In a second-best world, a trade barrier can be better than doing nothing, but some other policy instrument is usually more efficient.

12. 10.4 Promoting Domestic Production or Employment Positive Externalities • Promoting Domestic Production

15. Promoting Domestic Employment in an Industry Employment subsidy is better than trade barrier.

16. 10.5 The Infant Industry Argument 幼稚产业论

17. Friedrich List 1789-1846 Alexander Hamilton 1755–1804

19. The validity of the infant industry argument • Three questions • Is any government policy really needed? • Imperfections in the financial markets • Spillover of experience

20. 2. If government assistance is needed, what policy is best? 3. Will the infant industry really grow up ?

21. 10.6 The Dying Industry Argument • Reemployment difficulties • Trade barrier can help • Better policy tools: • Subsidies for moving • Subsidies for retraining • Subsidies for production or employment

22. Trade Adjustment Assistance • USA: • Extra 6-12 months of unemployment compensation in addition to the 6 month normal compensation. • Problems

23. 10.7 The Developing Government ( Public Revenue) Argument In poor developing countries, import tariff is a crucial source of government revenue.

24. 10.8 Non-economic Arguments • National Pride • National Defense • Income Redistribution

25. 10.9 The Politics of Protection • The basic elements of the political analysis • The size of the gains for the winners from protection (Bp: Area a ), and how many individuals are in the group of winners (Np).

26. The basic elements of the political analysis • The size of the losses for the losers from protection (Bc: Area a+b+d ), and how many individuals are in the group of losers (Nc).

27. The basic elements of the political analysis • Individuals’ reasons for taking positions for or against protection. • Bp or Bc √ • Sympathy • Ideology

28. The basic elements of the political analysis • Types of political activities and their costs. • Political institutions and the political process. • Direct voting • Representative voting

29. When Are Tariffs Unlikely ? • Direct Democracy • Direct vote by individuals on each tariff • Voting is costless • Each person votes based on his direct interest. • Nc > Np, No Tariff.

30. Representative Democracy • Each group is willing to devote all its gains (Bp or Bc) to political activities. • Politicians make decisions according to the amount of lobbying or contributions received. • Bc > Bp, No Tariff.

31. When Are Tariffs likely ? • Lobbying cost per individual is fixed Benefits • producers: Bp/Np (high) • Consumers: Bc/Nc (low) If Bc/Nc < Fixed cost, Tariff will be OK.

32. When Are Tariffs likely ? • Free-rider Problems 搭便车

33. Summary