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These three insights seldom lead to simple or obvious political conclusions. As the famous British economist Joan Robinson wrote some decades ago: “[E]conomic theory, in itself, preaches no doctrines and cannot establish any universally valid laws. It is a method of ordering ideas and formulating questions.” The study of economics is neither politically conservative, nor moderate, nor liberal. There are economists who are Democrats, Republicans, libertarians, socialists, and members of every other political group you can name. Of course, conservatives may tend to emphasize the virtues of markets and the limitations of government, while liberals may tend to emphasize the shortcomings of markets and the need for government programs. Such differences only illustrate that the language and terminology of economics is not limited to one set of political beliefs, but can be used by all.

Chinese tire tariffs

In April 2009, the union representing U.S. tire manufacturing workers filed a request with the U.S. International Trade Commission (ITC) , asking it to investigate tire imports from China. Under U.S. trade law, if imports from a country increase to the point that they cause market disruption in the United States, as determined by the ITC, then it can also recommend a remedy for this market disruption. In this case, the ITC determined that from 2004 to 2008, U.S. tire manufacturers suffered declines in production, financial health, and employment as a direct result of increases in tire imports from China. The ITC recommended that an additional tax be placed on tire imports from China. President Obama and Congress agreed with the ITC recommendation, and in June 2009 tariffs on Chinese tires increased from 4% to 39%.

Why would U.S. consumers buy imported tires from China in the first place? Most likely, because they are cheaper than tires produced domestically or in other countries. Therefore, this tariff increase should cause U.S. consumers to pay higher prices for tires, either because Chinese tires are now more expensive, or because U.S. consumers are pushed by the tariff to buy more expensive tires made by U.S. manufacturers or those from other countries. In the end, this tariff made U.S. consumers pay more for tires.

Was this tariff met with outrage expressed via social media, traditional media, or mass protests? Were there “Occupy Wall Street-type” demonstrations? The answer is a resounding “No.” Most U.S. tire consumers were likely unaware of the tariff increase, although they may have noticed the price increase, which was between $4 and $13 depending on the type of tire. Tire consumers are also potential voters. Conceivably, a tax increase, even a small one, might make voters unhappy. However, voters probably realized that it was not worth their time to learn anything about this issue or cast a vote based on it. They probably thought their vote would not matter in determining the outcome of an election or changing this policy.

Estimates of the impact of this tariff show it costs U.S. consumers around $1.11 billion annually. Of this amount, roughly $817 million ends up in the pockets of foreign tire manufacturers other than in China, and the remaining $294 million goes to U.S. tire manufacturers. In other words, the tariff increase on Chinese tires may have saved 1,200 jobs in the domestic tire sector, but it cost 3,700 jobs in other sectors, as consumers had to cut down on their spending because they were paying more for tires. Jobs were actually lost as a result of this tariff. Workers in U.S. tire manufacturing firms earned about $40,000 in 2010. Given the number of jobs saved and the total cost to U.S. consumers, the cost of saving one job amounted to $926,500!

This tariff caused a net decline in U.S. social surplus. (Total surplus is discussed in the Demand and Supply chapter, and tariffs are discussed in the The International Trade and Capital Flows chapter.) Instead of saving jobs, it cost jobs, and those jobs that it saved cost many times more than the people working in them could ever hope to earn. Why would the government do this?

The chapter answers this question by discussing the influence special interest groups have on economic policy. The steelworkers union, whose members make tires, saw more and more of its members lose their jobs as U.S. consumers consumed more and more cheap Chinese tires. By definition, this union is relatively small but well organized, especially compared to tire consumers. It stands to gain much for each of its members, compared to what each tire consumer may have to give up in terms of higher prices. So the steelworkers union (joined by domestic tire manufacturers) has not only the means but the incentive to lobby economic policymakers and lawmakers. Given that U.S. tire consumers are a large and unorganized group, if they even are a group, it is unlikely they will lobby against higher tire tariffs. In the end, lawmakers tend to listen to those who lobby them, even though the results make for bad economic policy.

Key concepts and summary

Majority votes can run into difficulties when more than two choices exist. A voting cycle occurs when, in a situation with at least three choices, choice A is preferred by a majority vote to choice B, choice B is preferred by a majority vote to choice C, and choice C is preferred by a majority vote to choice A. In such a situation, it is impossible to identify what the majority prefers. Another difficulty arises when the vote is so divided that no choice receives a majority.

A practical approach to microeconomic policy will need to take a realistic view of the specific strengths and weaknesses of markets and the specific strengths and weaknesses of government, rather than making the easy but wrong assumption that either the market or government is always beneficial or always harmful.

References

Nixon, Ron. “American Candy Makers. Pinched by Inflated Sugar Prices. Look Abroad.” The New York Times . Last modified October 30, 2013. http://www.nytimes.com/2013/10/31/us/american-candy-makers-pinched-by-inflated-sugar-prices-look-abroad.html?_r=0.

Hufbauer, Gary Clyde, and Sean Lowry. “U.S. Tire Tariffs: Saving Few Jobs at High Cost (Policy Brief 12-9).” Peterson Institute for International Economics . Last modified April 2012.

Questions & Answers

price is tantalisingly the only factor determining demand which can be analyze the view
Sinit Reply
Price is tantalizingly the only factor determining demand which can be analyze the view
Sinit
what is scarcity
Sharkdanny Reply
the state of being scarce or in short supply; shortage.
Abdirahin
what is meant by an abnormal demand curve?
Samuel Reply
what is microeconomics
Berun Reply
micronomics can be define as that part of Economics that deals with small scale business. e.g. House hold stuff
Amodu
Micro economics is the study of individuals, households and firms' behavior un decision making and allocation of resources
Christian
what is underemployment
Xornam Reply
It is the situation where the available resources are not used to it optimum
Bless
state the law of diminishing returns
Bless
Bless, the law of diminishing returns state that one point, adding a single worker will result in a decrease of production.
David
it is a situation where by people are employ but work under their potential
Akua
David please go into details kk
Bless
Akua pls when you say people alone? what about facilities?
Bless
Definition of underemployment. 1 : the condition in which people in a labor force are employed at less than full-time or regular jobs or at jobs inadequate with respect to their training or economic needs
Boahen
OK that is good
Set
I am new here
Taimoor
what does law of demand says?
Samuel
with a diagram explain fairy elastic demand
Samuel
comprehensive answer for public finance is the money that a government has available to spend from taxes and borrowing.
wilflay Reply
what then comprises of public opinion
Raphael
what is macro economics
SAGAR Reply
Definition of demand and supply
oyebanji Reply
whatd is name of economic scholars defined classic view
Ahmed Reply
Whole Classical view is based on J.B.Say's Law of Marker demand
abhinav
the science of economic has both positive and normative aspect,discuss.
Mkiwa Reply
simplified definition of a production possibility curve
Rose Reply
This is call the PFF curve .
Sumowoui
A country can produce lots of guns, or lots of butter. But, they cannot produce lots of both. The solution to this is called comparative advantage. Comparative advantage is that different countrys specialize in different areas, and then trade.
David
this is call the. pff curve
Murali
It is defind as a curve which shows various combinations of two goods produced with given resources
Shahid
it means a country with a given level of technology and available resources can produce two goods only if the technology or resources are efficiently utilize. In d process of utilization you will produce one goods more than the other that is why the downward slope of a PPC curve indicates opp cost
Odion
Shows all the possible combination of two goods or services
Christian
it is d intersection of two different variables
Odion Reply
what is equilibrium ?
James Reply
the quantity of demanded for a good is equal to its quantity supplied. Qdd=Qss
Podol
in economics, an equilibrium is situation in which : 1. qd=qd 2.no tendency or quantity to change 3. the market just clears without surplus/shortage
Podol
it is the intersection between two variables. Because you did not specify the equilibrium you talking about is it consumer or market forces
Odion
A state in which opposing forces or influences are balanced
Preeti
Equilibrium refers to the economic situation where supply and demand for a certain goods and services in market is equal, which represents a stable market price to purchase and sell.
Preeti
curve d and s intersection
Podol
yes jahan par demand and supply intersect karte hai wahi par equilibrium hota hai
Preeti
Equilibrium is when two variables intersect.
Akolo
equilibrium is a point where demand and supply meet with out shortages or surplus.
Sumowoui
Hmm scholars
Odion
am new here I want to know more about economics
Mansur
Micro and macro
Mansur
What do you think?
Yussif
can someone explain demand and supply
Mansur
demand is a quantity of a commodity which could be offer for sales at a particular price. !!!!...And supply is also a quantity of a commodity which could be brought by a consumer at a given price and time.
Rosemary
m also new want to know more about economics
Gift
kk
Rosemary
txup rose
Gift
hi
Rosemary
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Gift
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Rosemary
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Gift
Ibadan
Rosemary
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Nigeria
Rosemary
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RaviKumar
Ravi
Economic is the study of scarcity, Desires and Choices Elaborate the Statement
Shahid Reply
hi
SAGAR
what is economics
SAGAR
what is economic
SAGAR
economics is a study of how people use their limited resources to try to fulfill their unlimited wants and involves alternative or choices.
Podol
economic is the social science which study behaviour as a relationship between end and scares which have alternative uses
aminu
scarcity( land, labour, capital and enterprise) -occurs as human wants are greater than the available resources, but the most important concept in economics is if there is no scarcity , then there will be no economics study. choice - when scarcity exist , choices are made out of the available alt
Podol
Economic is the study of mankind in ordinary business of life it examines that part of life which most closely connected with the attainment and with the use of material requisites of well being
Shahid
economics is a subject initiated by late Adam Smith
sagar
Hello
Ansafol
It Deals with rational allocation of scarce goods n service
Abraham
hey how should I undestand economics
Teezykay
what is production possibility curve
Gift Reply

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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