Introduction to Government Influence on Trade
Introduction to Government Influence on Trade
The preceding case shows why and how automobile imports into the United
States were restricted. This is not an atypical situation: No country in the
world permits an unregulated flow of goods and services across its borders.
Restrictions commonly are placed on imports and occasionally on exports.
Direct or indirect subsidies frequently are given to industries to enable them
to compete with foreign production either at home or abroad. In general,
governmental influence is exerted in an attempt to satisfy economic, social, or political objectives. Action to increase automobile workers' employment is an example of such an objective. Often, there are conflicting objectives (e.g., increased employment versus lower consumer prices of automobiles) and much disagreement as to the likely employment effects of trade policies (e.g., employment increases for auto workers versus possible decreases for workers in other industries if foreign countries retaliate against U.S. trade policies by restricting their imports of some U.S.-made products).
Not surprisingly, any proposal for changes in trade regulations results in heated debates among individuals and interest groups who believe that they will be affected. Of course, the interest groups that are most directly affected are most apt to speak up. People whose livelihood depends on U.S. automobile production (workers, owners, suppliers, and local politicians) perceive the losses from import competition to be very great. Workers see themselves as being forced to take new jobs in new industries, perhaps in new locales. They may experience prolonged periods of unemployment, reduced incomes, and insecure work and social surroundings. People threatened in this way are liable to become a very strong pressure group. Workers in an industry that is affected only indirectly by retaliation, such as the aircraft industry, do not readily perceive the same threat and are less vocal. Neither do consumers perceive the threat, although they must pay higher prices for both foreign and domestically made cars. Although the aggregate costs certainly are great, they are so diffused throughout society that consumers are not likely to join together to protest import limitations very vigorously.
The preceding case shows why and how automobile imports into the United
States were restricted. This is not an atypical situation: No country in the
world permits an unregulated flow of goods and services across its borders.
Restrictions commonly are placed on imports and occasionally on exports.
Direct or indirect subsidies frequently are given to industries to enable them
to compete with foreign production either at home or abroad. In general,
governmental influence is exerted in an attempt to satisfy economic, social, or political objectives. Action to increase automobile workers' employment is an example of such an objective. Often, there are conflicting objectives (e.g., increased employment versus lower consumer prices of automobiles) and much disagreement as to the likely employment effects of trade policies (e.g., employment increases for auto workers versus possible decreases for workers in other industries if foreign countries retaliate against U.S. trade policies by restricting their imports of some U.S.-made products).
Not surprisingly, any proposal for changes in trade regulations results in heated debates among individuals and interest groups who believe that they will be affected. Of course, the interest groups that are most directly affected are most apt to speak up. People whose livelihood depends on U.S. automobile production (workers, owners, suppliers, and local politicians) perceive the losses from import competition to be very great. Workers see themselves as being forced to take new jobs in new industries, perhaps in new locales. They may experience prolonged periods of unemployment, reduced incomes, and insecure work and social surroundings. People threatened in this way are liable to become a very strong pressure group. Workers in an industry that is affected only indirectly by retaliation, such as the aircraft industry, do not readily perceive the same threat and are less vocal. Neither do consumers perceive the threat, although they must pay higher prices for both foreign and domestically made cars. Although the aggregate costs certainly are great, they are so diffused throughout society that consumers are not likely to join together to protest import limitations very vigorously.
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