Question

Generally, the use of trade policies that disrupt free trade is predicted to bring down the overall welfare of the imposing country. However, there are some cases where the opposite is predicted/argued. List as many of such cases as possible with the reason(s) behind such prediction(s)/argument(s).

Answer 1

Governments or public authorities employ trade barriers, such as tariffs, to control the free inflow of international goods and services. Although these barriers often discourage trade between nations but following are some situations when such barriers are considered desirable.

Increase the consumption of local goods

When duty tax is imposed on imported goods it increases their cost and this result in discouraging their use. This results in increased Consumption of locally produced goods as consumers have fewer alternatives available.

Example the gas-guzzler tax imposed by the United States government on fuel-inefficient foreign-made vehicles makes them cost more than vehicles manufactured locally. Many consumers will, therefore, go for domestic car makes.

Increase Domestic Employment

When local made goods are demanded at a higher rate this will result in increase in their production. This will result in local industries employing more local people as increased labor force will help in increasing the production, thus resulting in higher domestic employment. With more jobs available, unemployment rates will go down, and previously unemployed people will have an income they can use to improve their welfare.

Enhanced Social Security

The exporting country may refuse to supply necessary defense equipments to the importing country. This may result in serious threat to security. As a result to prevent this a government may encourage to produce necessary defense equipments within the national boundary, thus strengthening national security.

Example In 2013 the Obama administration issued an executive order banning the re-importation of military weapons that had previously been exported from the United States. The goal was to keep them out of wrong hands and subsequently, enhance national security.

Increased National Revenue

The government may impose tariff on imported goods to boost the local industries and employment. This helps in increasing national revenue. The duty from importers goes directly to government collection agency.Although tariffs are generally designed to discourage importation, some goods such as apparel and household appliances are so essential importers won't give them up. When the government raises tariffs on such goods, or starts taxing goods that were previously imported free of duty, it collects more revenue.

Better Consumer Protection

The government may set certain regulations on the some consumer goods that are being imported. This is done to ensure that such goods are safe for consumption and do not adversely affect the health of consumers.

Example Before importing goods like food, medicine, drugs, cosmetics the importers must ensure the manufacturers, producers or handlers of these products are registered with the U.S. Food and Drug Administration. The imports must also be inspected by the FDA before they are allowed into the country.

To conclude tariffs are not always bad. Sometimes government have to impose tariffs to enhance national revenue and welfare and safeguard the interests of consumers.