1. Suppose that Honda (a Japanese company) develops a new car that gets 100 mile
ID: 1105572 • Letter: 1
Question
1. Suppose that Honda (a Japanese company) develops a new car that gets 100 miles a gallon and only cost $1,000 and that American consumers love this car. Under free trade, this new car would devastate the automobile industry in the United States. Many believe that Ford, GM and Chrysler would be out of business within a year. If you were President of the United States would you recommend that the industry be protected by a tariff? If it was later found out that the Japanese government was subsidizing the production of these automobiles would you favor protecting the industry? Explain your answer. Your answer will not be graded based on whether or not you decide to protect the industry but rather on the support you give for your argument.
Explanation / Answer
Tariffs are usually imposed to negate get the effect of a lower price in the nation. When a nation trades with another Nation it tends to experience of fall in its price if it is importing from another country and there is a rise in prices when it exports to a foreign country.
Assume that one particular nation is exporting its good into our country that are a lot cheaper than what we can produce. Of course it's a very good opportunity for the consumer to have more of a good at lower prices but there will be dramatic change in the number of workers working in that industry which is destroyed by foreign Exports. There will be job losses apart from a skewed labour force.
Keeping in mind tarrifs should be placed. Another option is to impose voluntary export restraint whereby the foreign country will not be able to supply any export voluntarily.
If we came to know that the government of the foreign country which is Japanese government here, was subsidizing the production of these automobiles, this would be termed as export subsidies. In that case either the trade agreements would force the trade partner to remove the subsidies or would threaten it for a higher tariffs by the home country. Therefore in this case subsidizing would not be a favourable outcome for the for industry.
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