Aspects of the Theory of Tariffs (Collected Works of Harry Johnson)

15.  Effective Protection and General Equilibrium Theory^*

The theory of effective protection is based on, and owes its importance and interest to, one simple but fundamental idea: that protection is to be evaluated and analysed, not in terms of the nominal tariff rates on products, but in terms of the effective rates of protection afforded by the whole of a tariff structure (and possibly other aspects of government policy as well) to economic activities or processes. The effective rate of protection concept recognizes that a tariff provides a subsidy to the activity producing the product to which it applies, and imposes a tax on the products of other activities that use that product as an input. This change of approach is particularly relevant ...