Lecture 16Outline of Last Lecture I. The Effects of International Trade Outline of Current Lecture II. Arguments Against International Trade Current LectureTrade Restrictions:- Tariff-it has two effects:o Rise in domestic production but decrease in domestic consumption More of the good is produced by the higher-cost domestic producerso A tariff reduces economic efficiency Low cost producers are prevented form selling, consumers have to pay more- Import quotas (quantitative limit on imports of a good)o Mostly the same effects as a tariff Import quota will raise price, reduce quantity of imports Reduces buyer’s welfare Increases seller’s welfareo A quota creates profits for foreign producers of the imported goods  Because the good is reduced in supply, the importers can sell the good at a higher priceArguments for restricting Trade:1. The jobs argumenta. Trade reduces the number of jobs in the U.S. 2. The National Security Argumenta. Want to protect technology vital to economic securityb. An industry vital to national security should be protected from foreign competitioni. Rebuttal: the idea is fine but it is often abused 1. Keeps research and development from the industry as a secret3. The Infant Industry Argumenta. Children should be protected from hard laborb. Child labor is actually a poverty problem, not a trade problemi. Rebuttal: Can you find a better place for these children once you displace them from their jobs? They do not usually go to school but you have to find another job because it is their way of survival ii. Children work out of necessity, so what else will they do? 1. Alternatives are often worse-Ex. Prostitution ECON 1 1st Edition4. Protectionism: a. Ex. The U.S. can threaten to limit imports from French wine unless France lifts their quotas on American beefb. A tariff might be one possible way to avoid using an import quota- because quotas hurt the welfare of the U.S.5. The Unfair Competition Argumenta. Producers argue that their competitors in another country have an unfair advantage i. Ex. due to government subsidiesb. If that country is using its taxpayer’s money to subsidize this product, which same of the savings transfer to consumers, then this is good for the U.S. i. We can just import this lower cost product, helping consumers and the gains from this outweigh the