In: Economics
Choose between either the Labor argument and the National Security argument as one of the arguments countries generally use to justify protection for a particular industry. Describe the argument and any inherent problems with it. Is the argument primarily an economic or a noneconomic one? Question 2 - Your opinion only. Describe “traditional knowledge” and how do you think it relates to current trade issues about intellectual property rights protection
Question 1:
Labor argument : In this argument it is stated that international trade which claims that foreign competition based on low wages harms the domestic economy . This argument is used to protect domestic industries from cheaper imports .
National Security argument : This is the most common arguments supporting protection , also called the national defense argument. This argument suggests that it is necessary to protect certain industries with a tariff, to assure continued domestic production in the event of a war .
Let us elaborate the labor argument . Foreign trade often leads to import of cheaper variety of goods than produced in domestic market . Let us take cloth as an example . Suppose in Africa labor is very cheap or wages are very low . So cloth manufactured in Africa will be cheaper than in US where wages are higher relatively . So this African cloth if imported into US , make US cloth industry out of work , US cloth producers are forced to cut down on wages to compete with cheaper imports . So free international trade ensures equilibrium wages all over the world .
The inherent problem is that the domestic industries can specialize in the good in which it has comparative advantage and make profits from that . As for example US can specialize in computers and start to manufacture and export computers and stop manufacturing cloth . But low skilled labor required for cloth may not be able to adapt with production of computers , so training or education is required .