1. Use your knowledge about trade policy to evaluate each of the following statements (true, false, and explain): a. “An excellent way to reduce unemployment is to enact tariffs on imported goods.” The statement is false because tariff policy do not effects the unemployment rather business cycle and the issues prevailing in labor market directly affects the unemployment…
The cumulative effect is all the same. b. “Tariffs have a more negative effect on welfare in large countries than in small countries.” False, the opposite is true because tariffs by large countries can actually trim down world prices which helps offset their effects on consumers. c. “Automobile manufacturing jobs are headed to Mexico because wages are so much lower there than they are in the United States. As a result, we should implement tariffs on automobiles equal to the difference between US and Mexican wage rates.” False, the end result of policy might be increased production in the United States of America and decreased production in Mexico. But it will increase the selling price of the automobiles in USA and would negatively affect the welfare or people and consumer surplus. So there would be only dead weight that comes from consumption and the protection effects. 2. Recently, the United States has taken action to restrict imports of certain Chinese goods, such as toys containing lead and seafood that does not meet health standards, in order to protect US consumers. Some people have said that this shows a double standard: If we are willing to restrict goods on these grounds, why shouldn’t we restrict imports of goods that are produced with badly paid labor? Why is or isn’t this argument valid? Explain. This is not a valid argument because the free trading principles do not support it. So the world trade organizations can restrict only imports of those goods which can cause potential threat to the health and safety of Us Citizens. The low labor charges do not come in the potential health threat rather it effects the growth of economy so one cannot restrict the imports of goods on these basis. Free trade has the potential to reduce environment threats on one hand but on the other it somehow effects economic growth of particular nation. 3. What were some of the reasons for the decline of the import-substituting industrialization strategy in favor of a strategy that promotes open trade? Explain. The reasons for the decline of the import-substituting industrialization strategy in favor of strategy that promotes open trade are that the developing countries usually impose Ivey tariffs on the imported goods and the end result is that imported products are sold at higher rates and space is created for the domestically manufactured products. Although this import substituting industrialization strategy works wonder for developing countries for a while like the unemployment is reduced in the economy and the country is in better position to move from the basic agricultural products to the convenient or finished goods category. But the long terms effects of the import-substituting industrialization strategy is that developing countries can start to only survive in business environment without competition which is unhealthy as it will promote the lower quality products at higher prices eventually. Moreover, the subsidies need to maintain the industries that were once backed by state which can sap the economic growth. 4. Suppose that the Government of Canada asked you to develop a brief on behalf of subsidizing Canadian software development—bearing in mind that the software industry is currently dominated by US firms, notably Microsoft. What arguments would you use? What are the weaknesses in those arguments? The key squabble can be that there has to ...
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