Macro help….”The potentially valid arguments for tariff protection are also easily abused”?

Question by awww: Macro help….”The potentially valid arguments for tariff protection are also easily abused”?
What are those arguments?

Best answer:

Answer by Tmess2
The valid arguments essentially have to do with giving vulnerable industries and workers (either very young industries that the country/region wants to develop or older industries that have invested heavily in now outdated equipment and need to re-tool to more modern equipment) protection for a temporary period to let them adjust and become less vulnerable.

The reason that they are easily abused is that there might be other reasons why the industries are vulnerable (e.g. mismanagement or just so low-skill and low-tech that make it hard to get workers to accept competitive wages in a high-skill, high-tech, high-wage economy).

From a macroeconomic perspective, it makes sense to try to buy a little time for an industry which is temporarily unable to compete with global competitors but will be able to compete soon. It does not make macroeconomic sense to protect an industry which will never again be competitive (or which can only be competitive if it puts its internal house in order). However, once you accept the arguments for protecting one industry, it becomes politically harder to reject those arguments from other industries even when they are not economically valid.

Almost forgot to mention the other abuse. The rule that there is no such thing as permanent as a temporary emergency. In many countries that have used this argument for temporary protection, it has been hard for politicians and industry to agree that the temporary need has ended.

For a historical example, both Latin America and East Asia bought into the tariff protection argument in the late 1950s/early 1960s. After giving their industries a little bit of time to develop domestically, East Asia began to reduce the tariff protections thereby forcing these industries to become internationally competitive. The result was a boom for the East Asian economies. Latin America didn’t relax the tariff protections and, as such, never got beyond industries that could only be competitive locally with extensive tariff protections.

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