Question

Abraham Lincoln once said: "I don't know much about the tariff, but I know this. If I buy a coat in England, I get the coat and England gets the money. If I buy a coat in America, I get the coat and America gets the money." From an economics perspective, what is wrong about this idea of restricting international trade in order to rely more on national production?

Answer 1

Answer:

The idea of restricting international trade, otherwise known as trade protectionism, is considered wrong because the world today is centered around globalisation.

Explanation:

Countries desire to increase revenue for their local governments. They impose trade barriers through the imposition of tariffs, embargos, voluntary export restraints and so on, with the aim of reducing competition from foreign industries so as to promote local companies. However, this usually produces adverse effects, heavier than the intended benefits. Such effects include reducing the wide variety of goods and services available to the population, reducing the number of jobs due to reduction in number of foreign companies, increasing monopoly power which will in turn lead to higher prices being charged by monopolists. Indirectly, restricting international trade also affects international relations.