There are valid arguments for import barriers, though most are quite different from those usually given. One way or another, all valid defenses of import barriers lean on the existence of relevant distortions (resulting from gaps between private and social costs or benefits) or noneconomic objectives.

In a second-best world where there are distortions in the domestic economy, imposing a tariff may be better than doing nothing. Whether or not it is better will depend on the details of the specific case. Yet, even when imposing the tariff is better than doing nothing, something else is usually better than the tariff. The specificity rule is a rough guideline that says: Use the policy tool that is closest to the true source of the distorting gap between private and social incentives. This rule cuts against import barriers, which are usually only indirectly related to the source of the distortion. Thus, many of the main arguments for blocking imports—such as maintaining jobs in an industry, the infant industry argument, and the national defense argument—are really arguments for government policies other than import barriers.⁷

Figure 10.4
Can an Import Barrier Be Better Than Doing Nothing, and Is it the Best Policy?

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Note: Remember that "Yes, it can" does not mean "Yes, it is." To see what separates situations when the import barrier is better than nothing from situations when it is worse, review the text of this chapter.

*In all verdicts except that for national monopsony power, the conclusions refer to a small country so that the conclusions are not confounded by the possibility of optimal-tariff effects on the terms of trade.

The case for tariffs is most secure in the developing government setting. If a country is poor and its government limited in its administrative ability, then tariffs can be a vital source of government revenue to finance basic public investments and services.

Where, then, are the borders that separate good trade barriers from bad ones? Figure 10.4 maps those borders by summarizing the policy results of the main cases surveyed in this chapter plus Chapter 8's nationally optimal tariff plus two relevant cases coming up in Chapter 11. Note the clear contrast in the answers in the two columns. In the middle column, the answer repeatedly is yes, an import barrier can be better than doing nothing, depending on factors discussed in this chapter. In the right column, the answer is generally no, the import barrier is not the best policy tool, except in cases where the exact locus of the distortion is in international trade itself. You may wish to cross-check the results shown in this figure with the detailed discussion of the chapter.

If analysis of economic efficiency indicates that import protection is often a bad policy and seldom the best policy, why do so many countries have so many import barriers? The political economy of trade barriers explains them in terms of the gains for the winners from protection, the losses to those hurt by protection, the costs of engaging in political activities like voting, lobbying, and making campaign contributions, and the way that the political process works.

We can imagine political systems in which protection would be unlikely. If everybody voted directly, the majority would probably vote against a tariff or nontariff barrier because more people would be hurt as consumers than would be helped as producers of the product. Or, if everyone was willing to devote the entire amount that they would gain or lose to political activities like lobbying or campaign contributions, then political representatives would probably oppose protection because the loss to consumers would be larger than the gain to producers.

In reality, some groups are more effective than others at taking political actions to influence the votes of representatives. Producer groups are often more effective than consumer groups, because the benefits of protection are concentrated in a small group of producers. The benefits are large enough to spur actions by individual producers, and the free-rider problem is more easily solved in a small group. In addition, support for protection often increases when the losses to the group hurt by rising imports generate sympathy among the rest of the population.

This approach also helps to explain other patterns. The group-size effect can explain the tariff escalation pattern. A few large firms buying intermediate goods make a stronger lobby against protection of the products they are buying than do masses of final consumers, each of whom has too small an interest to go to battle over consumergood import policy. The ability of producer interests to lobby effectively also explains why, in international trade negotiations, each nation treats its own tariff reductions as if they were sacrifices. They are sacrifices for politicians who must answer to wellorganized import-competing producer groups. And the concessions offered by other countries to reduce their trade barriers mobilize well-organized groups of export producers to support the multilateral agreement.

⁷At this point you may review Chapter 8's section "A Preview of Conclusions," noting how each case discussed in Chapter 10 fits that preview.