Question

Government Trade Policy

Whose interests should be the paramount concern of government trade policy—the interests of producers (businesses and their employees) or those of consumers?

Answer 1

The long run interests of consumers should be the primary concern of governments. Unfortunately consumers, each of whom may be negatively impacted by only a few dollars, are less motivated and effective lobbyists than a few producers that have a great deal at stake. While in some instances it could be argued that domestic consumers will be better off if world-class domestic producers are nurtured and allowed to gain first mover advantages in international markets, it is doubtful that the government will be better than international capital markets at "picking winners", and will more likelypick the firms with the greatest political clout. While employees may well lose jobs if there are more efficient foreign competitors, some would argue that this is just the nature of competition, and that the role of government should be to help these employees get jobs where they can be efficiently employed rather than to protect them from reality in inefficient firms.