Chapter 9: International Economics: Basic Theory and Core Institutions


Your staff sends a memo to the President detailing your decision, highlighting your desire to protect your fragile, nascent independence from the dangers of dependence on Georgia and Russia. It also outlines the importance of building up your domestic industries, diversifying out of the agriculture and tourism sectors into manufacturing and other sectors, and seeking relative gains, as opposed to the absolute gains you would receive in trade with Russia and Georgia. The President understands your thinking and asks you how you plan to pursue your goals.

What do you do now?

Institute high tariffsThis way, needed goods can still come into the country, but with a high tax on them. This tax will provide revenue to the government, allowing the government to encourage development. While critics point out that high tariffs dissuade trade, dissuading trade is exactly what you want to do in your protectionist plan. This is a win-win for you.
Institute non-tariff barriersPut in place anti-dumping duties and import quotas to quell the influx of foreign goods and pursue a policy of government procurement to foster the fledgling domestic economy, especially in newer sectors. This way you can keep tariffs low while still pursuing protectionism.
Institute both high tariffs and non-tariff barriersThis will dampen imports the most, while providing the most revenue per unit of imported goods. By keeping tariffs high the government can take in more money on imports, but the NTBs allow for control over import quantities. Additionally, the tariff revenue can be redirected in a government procurement program, growing the domestic economy.