1. (30 points] The U.S. political establishment is currently focused on taxation

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1. (30 points] The U.S. political establishment is currently focused on taxation, but there is continuous mumbling about issues of trade policy and immigration policy. None of the talk has turned to action, but we can contemplate the implications of different policy experiments that might be tried over the next three years as well as the background for different suggestions. Please embed your responses to these questions in the context of the Heckscher-Ohlin-Samuelson (HOS) model of trade. a) In order to use the HOS model, you will want to anchor your responses. How would you describe the U.S. and the rest of the world in terms of relative factor abundance if there are two mobile (and homogeneous) factors in both places (labor and capital)? If there are two broad sectors and manufacturing makes use of higher ratios of capital to labor than does agriculture, in what sector would the U.S. be presumed to have a comparative advantage? Explain how your answer here is connected to your answer in part b) c) The U.S. Republican Party has traditionally included politicians that are advocates of free trade. The current President and many Democrat politicians harbor suspicions about free trade and are not inclined to support free trade. In order to win future elections, politicians in each camp are likely to be thinking about voters responses to trade policy changes Which voters are likely to prefer higher trade barriers (higher tariffs, lower quotas) on imports and which would oppose? Explain. The US. unemployment rate is currently relatively low (around 4%) so any response by producers and consumers to greater trade restrictions is likely to require some reallocation of labor and capital. What is likely to happen to output in each sector? Please explain. d) e) Immigration policy is usually chosen independent of trade policy even if their implications are not specific to either the domestic labor market or goods markets. IF (I am asking you to use your imagination) the conditions of factor price equalization hold and prices of goods are not the U.S.? Would it alter the allocation of labor and capital across sectors? Would it alter the volume of trade? altered in the process, would deportation of undocumented workers alter wages in If, in the short run, capital is literally stuck in its current location - whether in manufacturing or agriculture - would deportation of undocumented workers have the same effects on wages and labor allocation described in part (e)? Please describe any differences. f

Explanation / Answer

a USA is factor abundant in capital and rest of world is labour abundant

B USA WILL have comparative advantage in manufacturing as we said in part a that USA is capital abundant country and we know manufacturing is capital intensive

C Those who own capital will oppose tariff barriers and those who own labour will favour trade barriers. This is because usa being capital intensive according to heckscher ohlin model and stopler samulson theorem capitalists will gain from trade due to higher income and labour will loose from trade due to low income

D Due to restrictions labour and capital will move from export industry I. e manufacturing to agriculture. Thus agriculture production will rise and production of industry will decline

Can answer only 4 parts according to chegg policy. Please send other parts as separate question

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