Aspects of the Theory of Tariffs (Collected Works of Harry Johnson)

9.    The Costs of Protection and Self-Sufficiency*

I. INTRODUCTION

One of the interesting problems in the theory of commercial policy concerns the magnitude of the gains from trade, and the extent to which protective policies may reduce real income below its potential maximum and may account for differences in real income among nations. As is well known, for a country small enough that its terms of trade are unaffected by its commercial policy, the loss of real income due to protection can be divided into two elements – the consumption cost resulting from the distortion of prices facing consumers away from the prices ruling in the world market, which represent the social alternative opportunity costs of commodities to the country, and the production ...