Question

How should we decide what industries to protect?

In the 1970s, we protected the car industry from foreign competition. We also heavily protect our farm industry. However, we did NOT protect steel or microchips, and many other industries that must compete globally. Please answer the following questions.

When the first Japanese cars arrived on the West Coast in the 1970s, no one saw them as a threat to U.S. jobs. Although they were cheaper and more fuel-efficient than U.S.-made cars, most Americans could not be bothered; with gasoline at 30 cents a gallon, the difference in cost between a car that got 30 miles per gallon and one that got 10 was not very great, even for someone who drove a lot. But all this changed with the Arab oil embargo of 1973. As gas prices climbed, Americans took another look at small foreign cars. With expensive U.S. labor and outmoded facilities on one side, and Japanese efficiency and management techniques on the other, Japan seemed to be winning the war in the showroom. While imports may create as many jobs as they consume in the long run, in the short run many smokestack industry workers can be left permanently unemployed or underemployed.

Worried U.S. workers wanted protection, and they found a strong advocate in Representative John Dingell, one of the leaders of an emerging protectionist movement in Congress. Dingell spoke with President Reagan and Trade Representative William Brock and warned that if voluntary restrictions on Japanese auto imports weren't adopted, Congress would impose mandatory ones. Faced with this choice, the Japanese agreed in negotiations to voluntary restrictions. The restrictions worked. As the number of Japanese auto imports dropped between 1981 and 1982, domestic auto industry employment rose. But the cost of saving hundreds of thousands of U.S. jobs was restricted choice and higher prices for hundreds of millions of U.S. consumers. Hefty dealer markups were imposed on the scarcer but still-popular imports, and as sticker prices rose on Toyotas and Datsuns, General Motors, Ford, and Chrysler found that they could raise prices too.

The combined price paid by consumers for trade restrictions is very high; it has been estimated that each job protected from foreign competition with quotas or tariffs costs consumers about $160,000 in higher prices-more than enough to support the holder of that job. While trade restrictions may save jobs in the short run, they lock inefficiencies into the U.S. economy and merely delay needed efforts to divert people and assets into areas of the economy in which the United States has a competitive advantage-and which therefore offer long-term employment and profit possibilities.

Answer 1

The policy of protecting the domestic industries from foreign competitions is known as Trade Protectionism, a defensive measurement by political motivation.

Pros :

1. If any domestic industry tries to grow its own way, tariffs will protect from foreign competitions. So they can develop their own competitions.

2. It also creates jobs that is temporary. This policy hires local domestic industries.

3. When the other countries revenge by their own Protectionism, this benefit ends.

Cons : although in the short term it is advantageous, but in long it has disadvantage as follows

1. If one company does not compete with others, they never innovate something new. As a result, low quality and more expensive production will come.

3. Job outsourcing is another result of this Protectionism.

1. Pros of protecting domestic industries from foreign competitors:

• Jobs in developing countries like India, Brazil, and Indonesia etc. can be protected from cheaper labor.
• It can help in creating more jobs and higher wages at home.
• It can help in closing the gap in the income inequality.
• Newer industries can be protected from competition in their formative stages, allowing them to grow.

2. Cons of protecting domestic industries from foreign competitors:

• Companies that are protected from outside competition may flourish in short term, but in the longer term they will tend to become less efficient.
• Innovation will decline as companies stop thinking about changing in product development. Companies think that there is no need for innovation as they are protected from the government.
• Periods of protectionism have a historical habit of ending in an economic slumps or depression. The best example could be the great depression of 1930’s.