Another argument for
trade restrictions concerns the
strategy of bargaining. Many policymakers claim to support free but at the same time argue that trade
restrictions can be useful when we bargain with our trading partners. They claim that the threat of a trade restriction can help remove a trade restriction already
imposed by a foreign government. For
example Isoland might threaten to impose a tariff on steel unless Neighborland
removes its tariff on wheat. If Neighborland responds to this threat by
removing its tariff the result can be free trade.
The problem with this bargaining strategy that the threat
may not
work. It doesn’t work the country has a difficult choice. It can carry
out its threat and implement the trade restriction which would reduce its own
economic welfare. Or it can back down from its threat which would cause it to
lose prestige in international affairs. Faced with this choice the country would
probably wish that it had never made the threat in the first place.
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