Foreign producers often produce lower cost products than can American businesses

Question

Foreign producers often produce lower cost products than can American businesses because foreign labor is less expensive. In your opinion:

a) Should the American Government protect American producers by charging an import tax (or tariffs) on imported products so American producers can compete and not lose their businesses?

b) Will American producers who are protected in the U.S. by import taxes be able to effectively compete in the international market place with the cheaper products produced by foreign businesses? In other words, does forcing American businesses to find ways to reduce their prices, in effect, help them to be more competitive in the International market place thereby allowing them to expand their markets beyond the borders of the American Market place?

Explanation / Answer

1. The American Government's decision of charging the import tax will make the import commodities dearer for the consumers, causing the final prices to go up. The producers will be more competitive and be able to sell more of the produce. Additionally the Government will get aother source of revenue. The benefit is referred to as "gain of terms of trade". However, a dear commodity will result in lesser consumption by the consumers and further result in negative production decisions, ultimately causing what is called "efficiency loss". For a tariff to be beneficial, the gains of the terms of trade must be higher than efficiency loss. Hence the decision to impose a import tariff must be taken after fair assessment of the overall implications. The tariffs need to be optimal to balance the two. Furthermore imposition of high tariffs will also lead to retaliation by the exporting countries and they may also raise tariffs on the import of US origin products, resulting in a trade war.

2. It will be difficult for these products to perfrom well in the international marketplace as the cost of production of these items will be higher back home, and they are also likely to face the similar tariffs in foreign markets making them even more costlier and less competitive. The reduction of production costs back home, with help of cost reduction techniques, will have little effect on final competitiveness.

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.