By H. Peter Gray
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Additional resources for Free Trade or Protection?: A Pragmatic Analysis
Some of the problems may have arisen because of the cost pressures forced on Ford by high wage-rates and low-priced Japanese competition, but the story of the plant closing is an object lesson in inefficiency. However, workers never seemed to realise that the continued operation of 'their' plant was in doubt. Before it was closed, the plant did greatly improve the quality of its product. Some indication of the dynamics of union politics and costs in an industry facing severe import competition can be seen from the reaction within the United Auto Workers to the union leadership on the subject of givebacks.
There will be some difference in wage-rates in the two countries which will counter this difference, so that in the absence of barriers to international trade no international trade in Ford motor cars would take place between the two countries. If the British automobile market is protected from the German industry by some tariff, the workers at Ford in England are enjoying a kind of monopoly (inefficient) rent at the expense of their compatriots. J It is possible that differences in domestic efficiency are societal in origin.
What this amounts to is a system of profit-sharing for future profits - if such there be. III SUMMARY By itself, the identification of the concept of domestic inefficiency and its incorporation into a theory of international trade (Gray, 1983) strengthens rather than weakens the argument for free trade in the traditional static framework. Freer trade and more international competition can only tighten the cost-containing forces which exist in a national economy. Release of the static assumption allows for the possibility of reversible disturbances by which a firm or an industry can be temporarily unable to compete with foreign firms.