Economics for Today 9th Edition by Irvin Tucker

Exercise 6

THE GREAT ICE CREAM WAR
Applicable Concept: aggregate expenditures model
The following article from The Wall Street Journal provides a rare insight into the politics of global trade, and the Analyze the Issue connects trade policy to the macro model developed in this chapter:
While many people relish American-made ice cream with deliberately foreign-sounding names, few people realize that the U.S. government declared war on ice cream imports by restricting them to less than one-tenth of one percent of U.S. consumption. With quotas so low and transportation costs high, few countries bothered to ship any ice cream at all to the United States. For example, in 1988 the United States exported hundreds of thousands of gallons of ice cream to Canada, yet Canadian ice cream was banned from the United States. Only 576 gallons was imported from New Zealand and 12 gallons from Denmark. This was not enough ice cream to stock a large grocery store on a summer Saturday.
The U.S. ice cream quotas dated back to December 31, 1970, when President Nixon decreed that future ice cream imports could not exceed 431,330 gallons a year. Why? That year, according to Deputy Secretary of Agriculture Ann Veneman, testifying before the ITC [U.S. International Trade Commission], the U.S. was hit with a "flood of imports." This so-called "flood" amounted to barely 1 percent of U.S. ice cream consumption.
How did Mr. Nixon decide to limit imports to exactly 431,330 gallons a year? Section 22 of the Agriculture Adjustment Act allowed the U.S. government to protect domestic price-support programs by restricting imports to 50 percent of the annual average imports for a representative period. Ice cream imports did not begin until 1969, so the U.S. government chose 1969 and the two previous years with no ice cream imports in order to calculate a low annual average import quota for this product.
Finally, the article concluded that the U.S. government probably spent more than $1,000 in administrative expenses for each gallon of ice cream imported into the United States. The article's author concluded, "Global trade disputes are rapidly degenerating into a full employment program for government bureaucrats."
Assume the U.S. economy is in an inflationary gap condition. Use the Keynesian aggregate expenditures model to explain why increasing U.S. exports and restricting imports is or is not a desirable policy.