Sunday, May 5, 2013

More imports - Why not?

Conventional wisdom is that exports are good for the domestic economy while imports are to be minimized. Apart from encouraging local manufacturing capacity, exports lead to a better balance of trade position.

Some thinking on why imports are good for the economy and the need to unilaterally cut tariffs is found in this piece titled "Tariff reform needed to boost the US Economy" by Bryan Riley.
"Economists were right in 1930, and they are right today. Although eliminating all remaining tariffs and quotas might sound like a radical idea to lobbyists for the sugar industry and other special interests, it is the consensus recommendation from U.S. economists. In 2006, 87.5 percent of respondents to a survey of 210 PhD members of the American Economic Association agreed that the United States should eliminate remaining tariffs and other barriers to trade.[35] More recently, a 2012 survey of prominent economists found that 85 percent agreed with the following statement: “Freer trade improves productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any effects on employment.”[36] Congress should listen to the economists, not the special interests, and engage in broad-based, permanent tariff reform."
This suggestion, similar to an earlier study,  is contrary to conventional wisdom of higher imports impacting local domestic industry. I had blogged about it here earlier. What about the policy objectives of creating a local manufacturing capacity, local industrialization, local employment, tariffs as a domestic policy tool, revenue generation as well as the current account deficit? Is the policy of import liberalisation to ve viewed differently in developed and developing economies? No one size fits all?

Hat tip to Scott Lincicome for referring to this issue in his blogpost here.

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