Key Terms

Key Terms

anti-dumping laws laws that block imports sold below the cost of production and impose tariffs that would increase the price of these imports to reflect their cost of production common market economic agreement between countries to allow free trade in goods, services, labor, and financial capital between members while having a common external trade policy disruptive market change innovative new product or production technology which disrupts the status quo in a market, leading the innovators to earn more income and profits and the other firms to lose income and profits, unless they can come up with their own innovations dumping selling internationally traded goods below their cost of production economic union economic agreement between countries to allow free trade between members, a common external trade policy, and coordinated monetary and fiscal policies free trade agreement economic agreement between countries to allow free trade between members General Agreement on Tariffs and Trade (GATT) forum in which nations could come together to negotiate reductions in tariffs and other barriers to trade; the precursor to the World Trade Organization import quotas numerical limits on the quantity of products that a country can import national interest argument the argument that there are compelling national interests against depending on key imports from other nations nontariff barriers ways a nation can draw up rules, regulations, inspections, and paperwork to make it more costly or difficult to import products protectionism government policies to reduce or block imports race to the bottom when production locates in countries with the lowest environmental (or other) standards, putting pressure on all countries to reduce their environmental standards World Trade Organization (WTO) organization that seeks to negotiate reductions in barriers to trade and to adjudicate complaints about violations of international trade policy; successor to the General Agreement on Tariffs and Trade (GATT)

Key Concepts and Summary

21.1 Protectionism: An Indirect Subsidy from Consumers to Producers

There are three tools for restricting the flow of trade: tariffs, import quotas, and nontariff barriers. When a country places limitations on imports from abroad, regardless of whether it uses tariffs, quotas, or nontariff barriers, it is said to be practicing protectionism. Protectionism will raise the price of the protected good in the domestic market, which causes domestic consumers to pay more, but domestic producers to earn more.

21.2 International Trade and Its Effects on Jobs, Wages, and Working Conditions

As international trade increases, it contributes to a shift in jobs away from industries where that economy does not have a comparative advantage and toward industries where it does have a comparative advantage. The degree to which trade affects labor markets has much to do with the structure of the labor market in that country and the adjustment process in other industries. Global trade should raise the average level of wages by increasing productivity. However, this increase in average wages may include both gains to workers in certain jobs and industries and losses to others. In thinking about labor practices in low-income countries, it is useful to draw a line between what is unpleasant to think about and what is morally objectionable. For example, low wages and long working hours in poor countries are unpleasant to think about, but for people in low-income parts of the world, it may well be the best option open to them. Practices like child labor and forced labor are morally objectionable and many countries refuse to import products made using these practices.

21.3 Arguments in Support of Restricting Imports

There are a number of arguments that support restricting imports. These arguments are based around