macroeconomics, homework, international-tradeWhen a country opens itself to international commerce, how does import affect its economy? I mean, I have a feeling it is bad for the economy, but I guess it’s not since borders are being open more and more.
It isn't actually a question of goods crossing borders (although, to quote Bastiat, "When goods cannot cross borders, armies will."). It is about free choice and trade.
Consider the US where different states have different tax rates, different wage differentials and efficiences. All of this has resulted in dramatically different investment rates for the different states. It isn't only about countries, but about states/provinces and towns as well.
Trade can permit consumer choice. If substitutable products can be imported at a lower price then all consumers gain spending power, able to spend their savings on other products (or save and invest to improve their lives). This comes at the expense of the minority of previous incumbents who lose their pricing power (but who may continue to have political power).
Your assumption that such trade is bad is really about what free trade exposes: inefficiency. If an artificial barrier has permitted businesses to hide their inefficiency (or even rent seeking behaviour) then they may struggle with new competitors. Such competition can either force local businesses to improve, or lead them to demand new protections which raise prices for all consumers still further.
Protectionism can take many forms and isn't only about trade between countries. A town which refuses to allow a Walmart to open is deliberately protecting smaller, inefficient, local businesses from a discount competitor. They are choosing higher prices to save some businesses.
Lower prices are better for consumers (or choice is better, since it permits a greater variety of expression) but it can also lead to tremendous disruption as all these inefficiencies are exposed and responded to (for better or worse). Jobs can be lost (with the perception that they are being "outsourced") and local economies experience short-term erosion. If poor support exists for those unemployed workers then they may never regain employment. This speaks less about the dangers of international trade than it does about local flexibility, adaptability and support for change.
As Warren Buffet said, "It is only when the tide has gone out that we get to see who has been bathing naked."
There are many wrinkles and subtleties to answer here. Some of the very basics:
Other models deal with more complex issues, such as multinational corporations, trade in intermediate goods, the effects on growth, and so on, but a general theme is that some groups benefit from trade liberalization, and others loose. Thus, producers in a given industry will tend to lobby against liberalization of their sector while consumers would be expected to desire trade liberalization (though the average U.S. and EU consumer seems to lean towards the protectionist end of the spectrum).
Country can only close itself because the world is open by default. I.e. anybody can freely trade with anybody in the world untill the Country (i.e. government) stops people from trading freely by using aggresive force and charging them for the expenses.
So the question should be the opposite - Can taking your money and using them to prevent you from buying things improve the economy? I think the answer is much more clear now. Nothing has been created - no new usefull product has appeared nor any usefull service has been provided, but the money (resources) were used up. There’s no way this could help the economy.
All content is licensed under CC BY-SA 3.0.