1.
Public choice is the analysis of the government decision-making process in allocating resources or developing economic policy. The premise underlying the theory of public choice is that politicians attempt to maximize their utility. For a politician, utility maximization may be congruent with maximizing the number of votes he or she will receive in the next election. Politicians generally favor programs having immediate and clear-cut benefits with vague, difficult to measure or deferred costs. They do not support programs having future benefits that are vague and difficult to measure and have immediate and easily identifiable costs.
2.
Rent-seeking is the act of obtaining special treatment by the government at the expense of society as a whole.
3.
In a democracy, individuals have an incentive to form groups to attempt to influence the government to pass laws that serve their collective interest. This behavior on the part of individuals is called collective action. In our case, while any country benefits from free trade, the gains to individual consumers per good consumed are relatively small. Because an individual consumer cannot quantitatively feel the gains, they as a group do not lobby the government for free trade. The firms in industries that have a comparative advantage are attempting to influence the trade policy of foreign countries. The group that will lobby the government concerning free trade is the group that ineffectively competes with imports. This rent-seeking behavior by the import competing group may also maximize the votes a politician receives in the next election. Voting for protection may gain the politician a few additional votes from the industry, firms, and workers that receive the protection.
4.
In the US and in virtually all other countries, the tariff imposed on goods varies considerably from one good to another. In fact, the tariff schedule of the US is an extremely complicated document. This occurs because tariffs are levied on very specific goods or product categories. Details like this in a country's tariff schedule provide two advantages: (1) A producer of a good that competes with imports can focus its lobbying efforts for protection on a particular good. For example, it is easier to gain protection for a product like imported bacon than for all imported food. The reason why it's easier to obtain protection is that consumers would most likely not notice a small increase in the price of bacon due to a tariff. (2) A very detailed tariff schedule makes it possible for a politician to pick up votes by protecting one specific good without inducing a protest from the average consumer. This is why most countries have developed complicated tariff schedules where the tariffs on very similar goods are dramatically different.
5.
The research does indicate that an industry having one or more of the following factors has a higher probability of having a higher tariff. First, large industries that are important to a country are more likely to be protected than small unimportant industries. Second, the more concentrated the industry the more likely it is to have protection. Third, it is easier for firms to obtain protection if they produce an intermediate product, such as steel, where the voters are unlikely to notice price increases. Fourth, industries that have a larger number of employees are more likely to gain protection than those that have fewer employees. If the industry is regionally concentrated and/or unionized, the workers are able to lobby more effectively. Lastly, industries that have a comparative disadvantage are more likely to be protected.
© 2015 W. Charles Sawyer and Richard L. Sprinkle

6.
Economists have long advocated a uniform tariff that would solve a number of problems associated with a complicated tariff schedule. A uniform tariff becomes easy to administer. Moreover, a uniform tariff makes lobbying for protectionism much harder for several reasons: (1) A general increase in the tariff is unlikely to pass by consumers completely unnoticed. (2) Other industries with the capability to lobby the government would likely spring into action. (3) Firms purchasing imported products would see the increase in the tariff as a direct increase in their costs and would complain to the government. The net result is that more firms may lose from the higher tariff than firms that gain from it.
7.
Some industries have greater protection than others because of their relative size, concentration, the type of product they produce, the number of workers within the industry, and the degree to which the industry has a comparative disadvantage. Large industries that are important to a country are more likely to be protected than small unimportant industries. The more concentrated the industry the more likely it is to have protection. If firms produce an intermediate product it is more likely to have protection.
Industries that have a larger number of employees are more likely to gain protection than those that have fewer employees. Industries that have a comparative disadvantage are more likely to be protected.
8.
Figure 10.1 is a convenient way to view the history of US trade policy. During the late eighteenth and the nineteenth century, the tariff was the main source of revenue for the federal government. In the early nineteenth century, increases in the tariff were supported by industrial interests in the North. This movement culminated in the Tariff of
Abominations of 1828. Because of strong Southern complaints over this policy, tariffs gradually fell until they were increased to help finance the Civil War. From that peak, tariffs fell for most of the remainder of the twentieth century.
9.
Arguments justifying protection in the US have resulted in several periods of very high tariffs. Alexander Hamilton's Report on Manufactures recommended high tariffs on manufactured goods as a means of developing US industry capable of competing with the
British. This policy of infant-industry protection was gradually adopted and tariffs in the
US were increased. Because the tariff was a major source of revenue for the US government, tariffs increased dramatically to finance the Civil War and remained high until 1913. In the early 1920s Congress quickly raised tariffs to protect domestic industry.
Congress passed the famous Smoot-Hawley Tariff of 1930. This tariff law resulted in the highest general tariff structure in US history with average tariffs of approximately 60 percent on dutiable imports. Other nations retaliated by raising their tariffs against goods imported from the US. As a result of the Great Depression and the tariff increases, the volume of world trade declined from nearly $3 billion in 1929 to less than $500 million in
1933.
10.
In 1933, the Roosevelt Administration persuaded Congress to transfer the authority to negotiate tariff reductions to the President of the US. In 1934 Congress passed the
Reciprocal Trade Agreements Act. This Act is the basis for current US trade policy.
Three provisions of this Act are still important today. First, tariff reciprocity means that the US will negotiate tariff reductions only in return for tariff reductions by its trade partners. Second, the Act transferred US trade policy from Congress to the President by giving the President authorization to negotiate trade agreements. Once an agreement has
© 2015 W. Charles Sawyer and Richard L. Sprinkle

been negotiated, Congress votes to approve the agreement in total, meaning the agreement cannot be amended. Third, the Act, and all future trade legislation, is based on the most favored nation (MFN) principle, now called normal trade relations. This nondiscrimination principle means that any tariff cuts the US agrees to with one country would apply to the products of all other trade partners that the US government has granted most-favored-nation status.
11.
MFN is important for two reasons. First, it makes the administration of trade policy much easier. Second, it makes trade less risky. With MFN, increases in tariffs are much more unusual than they would be if the tariff on a product were country specific.
12.
The Reciprocal Trade Agreements Act transferred US trade policy from Congress to the president by giving the president authorization to negotiate trade agreements with foreign countries. This provision allows foreign countries to negotiate with the executive branch of the US government without having to negotiate every detail of the agreement with individual members of Congress. Once an agreement has been negotiated, Congress votes to approve or reject the agreement in total, without amendments. Without this provision, other countries would be reluctant to negotiate with the US.
13.
Sporadic dumping occurs when a product is occasionally sold in a foreign market at a price below that which it is sold in the domestic market. Persistent dumping is selling at a price less than that which the product is sold in the domestic market over an extended period of time. This is usually related to price discrimination. Predatory dumping is the selling of products in a foreign market at a reduced price in order to drive domestic competitors out of the market.
14.
The original antidumping law was passed in 1916 as an extension of the prohibition of the
Sherman Act on predatory pricing. The Antidumping Act of 1921 extended the original law to make dumping illegal even if there was no predatory intent. The Act was amended in 1930, 1979, 1984, and 1988. These amendments have generally made it easier for domestic firms to obtain protection from imports.
15.
Governments use countervailing duties to protect domestic industries from subsidized imports. Firms can petition the government to increase the tariff to offset the price effects of foreign government export subsidies.
16.
The escape clause is different from antidumping and countervailing duties in two ways.
First, the industry is not claiming that foreign competitors have violated any international trade laws. Second, in the US the administration of the law is different. The industry files a petition only with the International Trade Commission (ITC). The ITC then determines only whether or not the domestic industry is being injured by foreign competition and makes a recommendation to the President. The final decision concerning whether to grant protection or not rests solely with the President.
17.
The GATT began in 1947 with 23 contracting parties and grew until it comprised more than 100 contracting parties. In total, the contracting parties (countries) covered more than 90 percent of world trade. To become a contracting party of GATT, a country had to give most-favored-nation status to all other contracting parties and had to eliminate any quotas (quantitative restrictions on imports) that restricted international trade. GATT’s primary objective was to reduce the high levels of tariffs remaining since the 1930s. Over
© 2015 W. Charles Sawyer and Richard L. Sprinkle

the next 50 years, a number of multilateral trade negotiations (MTNs) successfully reduced tariff and nontariff barriers to trade.
18.
See Table 10.3 of the text for a complete listing of the MTNs and the major issues negotiated.
19.
There is one very important difference between GATT and the WTO. Under GATT, a country could file a trade complaint against another country and the GATT Council would investigate the complaint. However, the investigation was slow and the GATT panels' findings were routinely ignored because GATT could not enforce them. Under the
WTO, a country can file a trade complaint against another country and a WTO panel will investigate the complaint. The WTO panel will issue its findings within six months and the offended country will legally be able to retaliate against the other country. Thus, countries that are found to be guilty of breaking WTO rules can and will be legally penalized via restrictions placed on that country's exports.
20.
The agenda for the Doha Round is complex. However, the agenda effectively provides a roadmap of what remains to be completed in terms of modernizing WTO rules to fit the more modern aspects of international trade. The following is a list of the major issues facing the negotiators: International Trade in Agricultural Products, Market Access,
International Trade in Services, Trade Related Intellectual Property (TRIPS), and Trade
Related Investment Measures (TRIMS).
© 2015 W. Charles Sawyer and Richard L. Sprinkle