The problem with protection

There has been a surge in the popularity of ''economic nationalism" among politicians recently. Talk of tariffs to 'level the playing field' has become common in Europe, the US and Australia. It's a really dumb idea.

The arguments run something like this. "Imported goods are replacing domestic goods, our industries can't compete and that means they shrink or close leading to unemployment. We should put a tariff on imports to save jobs."

This thinking led to disastrous rounds of tariffs being imposed in the 1930's making the Great Depression much worse than it otherwise would have been.

Today Donald Trump wants a tariff to protect US jobs from China, there is a danger of a steel 'tariff war' and in Australia it's not just steel which raises the protectionist instincts of opportunist politicians.

Tariffs will raise prices and reduce imports. But the implications are much wider than this. While tariffs will be popular with those who might keep their jobs for a little longer they impose costs on the rest of the population, cause inflation and restrict growth, so lowering the long term standard of living.

The New York Times article below goes through the implications of the imposition of a tariff. This is an excellent analysis on the dynamic effects of a tariff and provides multiple evaluative points.

The New York Times article is here

IB students will find this an excellent resource for evaluating tariffs and understanding how the simple tariff diagram is only a static analysis. VCE students will be able to apply this to the idea of placing a tariff on imported steel to protect Australia's unprofitable industry.