17 See
Batchelor, R. A. and Minford, A. P. L., ‘Import Controls and Devaluation as Medium Term Policies’ in On How to Cope with Britain's Trade Position, Corbet, H.
et al., Trade Policy Research Centre, London, 1977
Google Scholar.
Occasionally the CEPG claim as an additional benefit that import controls would have a favourable effect on the terms of trade (the prices of our imports relative to the prices of our exports), quite apart from their general macroeconomic effect discussed in the text. In so doing they would be assuming that a fall in our demand for imports and a rise in our supply of exports would be significant enough in the world market for the types of goods we export and import to alter their world prices. Such an assumption could well be valid in which case their claim would be correct and would be an example of the famous classical ‘optimum tariff’ argument whereby tariffs are used to exploit a monopoly type of advantage in trade. However, the problem with such an optimum tariff lies precisely in the dangers of retaliation and trade warfare. It turns out that if there is retaliation, it may be possible for some (i. e. those with the strongest monopoly power) of the warring parties to be better off than with free trade at the expense of the others, but that in total all will be worse off. It will always pay the losers to bribe the winners back to free trade Now if you are one of the potential winners, it could be worth playing for the ultimate bribe. But it is highly unlikely that Britain with its 10 per cent share of world trade has sufficient monopoly power to be in this situation; certainly no one, including the CEPG, has demonstrated to the contrary.
