One reason people are against protective tariffs is that?

Answer 1

To explain this, we first need to look at the reason why protective tariffs are present in some markets. For simplicity, let us look at the market for dairy products. Naturally, the production cost (and the price) of dairy products differs across countries due to the fact that some countries are "better" at producing such products. The reason for this could be better technology, higher productivity or for example cheaper input factors. Imagine now that we have two countries, A and B. In country A, dairy products are produced cheap due to high efficiency and good technology, this also reflects the price which is low. In country B, the production costs of dairy products are high, and so is the price. Imagine now that the consumers in country B also want to buy cheap dairy products, and the country opens up for import of dairy products from A. Clearly, this will be a benefit for the consumers in country B since the price of imported dairy products are cheaper. However, the dairy industry in country B suffers from this, since the consumers no longer buys their products. This is where the protective tariffs comes into the picture. To protect the dairy industry in country B from competition, the government implement tariffs on imported dairy products. This is a trivial example, however it is easy to see that the consumers in country B suffers from the protective tariffs. The government and the industry on the other hand, is satisfied. From a socio-economic view this is however not optimal. Both welfare and consumer surplus is decreased. We can therefore argue that protective tariffs will lead to inefficiency and decreased welfare. If the tariffs in our example was removed, some of the farmers in country B would perhaps go bankrupt, however when they realize that they need to compete with country A in order to "stay alive" they will increase efficiency by working harder or implement better technology in their production system. Since higher efficiency leads to higher welfare, this is also optimal from a socio-economic point of view.