【正文】 evel of output, the industry cannot pete with more established foreign firms The InfantIndustry Temporary trade protection to protect the domestic industry during its “infancy” until it can meet foreign petition, achieve economies of scale, and reflect the nation’s longrun parative advantage ? protection is then removed ? the return in the grownup industry must be sufficiently high to offset the higher price paid by domestic consumers Infantindustry Argument ? requires some qualifications ? 1st: more justified for developing nations (where capital markets may not function properly) than for industrial nations ? 2nd: difficult to identify the industries for protection。 protection, once given, difficult to remove ? 3rd: production subsidy can do better Infantindustry Argument ? purely domestic distortion should be overe with a purely domestic policy (direct production subsidy) rather than with a trade policy ? direct production subsidy: more direct aid, easier to remove ? But subsidy requires revenues, rather than generating them as an import tariff does The InfantIndustry ? A better policy would be to provide a direct subsidy to industry ? stimulate the industry without the consumption distortion and loss to domestic consumers Other Qualified Arguments for Protection ? protect domestic industries important for national defense. ? direct production subsidies are generally better than tariff ? Some tariffs can be regarded as “bargaining tariffs” that are to be used to induce other nations to agree to a mutual reduction in tariffs ? political scientists more qualified to judge how effective they are in achieving their intended purpose Other Qualified Arguments for Protection ? closest to a truly valid economic argument: the optimum tariff ? if a nation is large enough to affect its terms of trade, the nation can exploit its market power and improve its terms of trade and welfare with an optimum tariff ? other nations are likely to retaliate so that in the end all nations lose Who Gets Protected? ? Producers vs. consumers? Who Gets Protected? ? increasing modity price: trade protection benefits producers and harms consumers (the nation as a whole) ? Producers: few, strong incentive to lobby the government ? Consumers: each loses very little, not likely to effectively anize Who Gets Protected? ? Quota raises expenditures on sugar by about $ per person per year in the US ? 285 million people in the US, the quota generates more than $400 million ? A few thousand sugar producers Who Gets Protected? ? empirically confirmed ? industrial countries: protection to laborintensive industries employing unskilled, lowwage workers ? pressuregroup (interestgroup) theory: industries that are highly anized (automobile industry) receive more trade protection than less anized industries ? An industry is more likely to be anized if it is posed of only a few firms Who Gets Protected? ? industries producing consumer products vs. industries producing intermediate products? Who Gets Protected? ? industries that produce consumer products are able to obtain more protection ? industries producing intermediate products used as inputs by other industries can block protection (since that would increase the price of their inputs) Who Gets Protected? ? geographically decentralized industries vs. industries that operate in only some regions? Who Gets Protected? ? More protection to geographically decentralized industries with a large number of workers than to industries that operate in only some regions with relatively few workers ? Large number of workers has strong voting power to elect government officials who support protection for the industry ? Decentralization ensures that elected officials from many regions support the trade protection Who Gets Protected? ? maintaining the status quo: an industry to be protected now if it was protected in the past ? Governments reluctant to adopt trade policies that result in large changes, regardless of those industries that pete with products from developing countries because these countries have less economic and political power than industrial countries to successfully resist trade restrictions against their exports Who Gets Protected? ? Some of the above theories are overlapping and some are conflicting, and they have been only partially confirmed empirically ? The most highly protected industry in the US today is the textiles and apparel industry Strategic Trade and Industrial Policies ? A nation can create a parative advantage in semiconductors, puters, and telemunications crucial to future growth in the nation ? These hightechnology industries are subject to high risks, require largescale production to achieve economies of scale, and give rise to extensive external economies when successful Strategic Trade and Industrial Policies ? by encouraging such industries, the nation can reap the large external economies and enhance its future growth prospects ? similar to the infantindustry argument in developing nations, except that it is advanced for industries nations to acquire a parative advantage in crucial hightechnology industries ? a great deal of the postwar industrial and technological success of Japan was due to its strategic industrial and trade policies Strategic Trade and Industrial Policies ? the serious difficulties in carrying it out ? 1st: extremely difficult to pick winners and devise appropriate policies to successfully nurture them ? 2nd: since most leading nations undertake strategic trade policies at the same time, their efforts are largely neutralized, so that the potential benefit to each may be