A country's domestic bicycle industry is losing sales to cheaper imported bicycles. Compare the government's options.
Impose a tariff
- Domestic makers: Imports become dearer, so local sales rise.
- Consumers: Pay higher prices and have less choice.
- Exporters: Trading partners may retaliate.
A tariff protects jobs in the short run but raises prices and risks retaliation.
Subsidise domestic makers
- Domestic makers: Lower costs let them compete on price.
- Consumers: Prices stay low.
- Taxpayers: The subsidy must be funded.
A subsidy protects producers without raising prices, but costs the government.
Keep free trade and fund retraining
- Consumers: Keep cheap imported bicycles.
- Bicycle workers: May lose jobs but can retrain for growing industries.
- Economy: Resources move to industries where the country is more competitive.
Keeping free trade benefits consumers and efficiency, while retraining eases the cost for workers.