together in 1947 to form the General Agreement on Tariffs and Trade (GATT). (We’ll cover the GATT in more

detail later in the chapter.) This agreement has since been superseded by the World Trade Organization

(WTO), whose membership includes about 150 nations and most of the world's economies. It is the primary

international mechanism through which nations negotiate their trade rules—including rules about tariffs,

quotas, and nontariff barriers. The next section examines the results of such protectionism and develops a

simple model to show the impact of trade policy.

Demand and Supply Analysis of Protectionism

To the non-economist, restricting imports may appear to be nothing more than taking sales from foreign

producers and giving them to domestic producers. Other factors are at work, however, because firms do not

operate in a vacuum. Instead, firms sell their products either to consumers or to other firms (if they are
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