Wednesday, July 21, 2010

Effective Protectionism

One of the lessons in international trade class is that tariffs on input goods harm upstream domestic industries - e.g, a tariff on steel would put domestic automakers at a disadvantage by raising their costs relative to foreign competitors. To account for this, economists use a measure known as the "effective rate of protection" which calculates the net effect from the tariffs on the final product that protect an industry and the input tariffs that harm it.

Economists have a strong reflex to sigh when we see a headline like "House Passes Tariff Bill to Help Manufacturers," so it was a relief to read beneath it:
The House of Representatives approved a bill on Wednesday to help U.S. manufacturers by suspending import duties on hundreds of raw materials they use to make finished goods.
That is, the House is increasing the effective rate of protection by lowering tariffs. Perhaps they're more clever than I thought...

No comments: