Chapter 8: Problem 14

Producers in import-competing industries often make the following argument: "Other countries have an advantage in production of certain goods purely because workers abroad are paid lower wages. In fact, American workers are much more productive than foreign workers. So import-competing industries need to be protected." Is this a valid argument? Explain your answer.

Short Answer

Expert verified

Answer: The arguments have some valid points, such as American workers being more productive and foreign countries having lower wages contributing to lower production costs. However, the proposed solution of protectionism may not be the most effective or beneficial solution in the long run, as it can have negative effects on the overall economy and competitiveness of domestic industries. Instead, improving the competitiveness of domestic industries through investments in technology, education, and infrastructure might be a more sustainable approach.

Step by step solution

1. Understanding the Argument

First, let's understand the main points of the argument. The producers are stating that: - Other countries have an advantage in production of certain goods due to lower wages paid to their workers. - American workers are more productive than foreign workers. - Import-competing industries should be protected based on these factors.

2. Analyzing Productivity

Productivity can be defined as the output per worker or per hour worked. To evaluate the validity of the argument that American workers are more productive, we need to compare their productivity with that of foreign workers in the same industry. If American workers indeed produce more output for the same amount of time, it supports this part of the argument.

3. Examining Wage Differences

Countries with lower wages have lower labor costs, which can lead to cheaper products. However, this doesn't necessarily mean that these countries have an overall advantage in production. Other factors, such as technology, infrastructure, and access to resources, can also play a role in determining a country's competitiveness in producing goods. Hence, it is essential to consider other factors beyond wages when comparing the production capacities of different countries.

4. Addressing Protectionism

Protectionism refers to policies that protect domestic industries from foreign competition, such as tariffs, quotas, and regulations. The argument calls for protectionism to support import-competing industries. While protectionism might help domestic industries in the short-term, it can have negative effects in the long run for both the protected industries and the economy as a whole. This is because protectionism can: - Reduce the efficiency and competitiveness of domestic industries. - Lead to trade imbalances and retaliation from other countries. - Limit domestic producers' access to foreign markets and technologies. - Increase prices for consumers, affecting their purchasing power and the overall economy.

5. Evaluating the Validity of the Argument

In conclusion, while it is true that American workers may be more productive than foreign workers, and lower wages in other countries can contribute to lower production costs, protectionism may not be the best solution. Instead, focusing on improving the competitiveness of domestic industries through investments in technology, education, and infrastructure might be a more sustainable path toward economic growth and prosperity. As a result, the argument does have some valid points, but the proposed solution of protecting import-competing industries may not be the most effective or beneficial solution in the long run.

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!