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

Following the theory of comparative advantage it is generally believed that a country tends to import items that it can not produce at a lower cost than other countries and exports items that it can produce at a lower cost than other countries.

Therefore, if a country adopts trade policies that disrupt free trade it is believed that it will bring down overall welfare of the imposing country.

For example, US imposed tariffs on many imports from China. However, proponents of such policy have argued that it will benefit US by bringing in revenues from tariffs and will also disincentivise imports from China which may bring back many manufacturing jobs from China.

The main reason behind their argument is that China has gained unfair advantage in international trade by stealing trade secrets from US companies and it has also targeted US imports by using various manipulative policies.

Similarly many developing countries such as India, South Africa have impose tariffs on imprts from developed countries to save their nascent industries from competition from large MNCs.

I do believe there are genuine concerns of developing countries about imports from developed countries.

However, every individual case of imposing tariffs has to be looked independently to analyse its justification.