(L65) Protectionism

Does a tariff on imports also reduce exports?

Tariffs on imports do in fact reduce exports. This happens because output is bound to lag when tariffs and quotas are put in place to protect (and promote) inefficient domestic producers. As output decreases, producers will not be able to keep up with demand, either domestic or foreign. Foreign producers then decide to extend their market share in secret, much like Walmart. By the time competitors realize what is happening to their customer base, it is too late to catch up because foreign producers have much more competitive prices and a higher production rate. Domestic exports are no longer in demand by this point in time, seeing as how consumers can get better deals elsewhere.

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