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Chapter 9: Problem 6

A student makes the following argument: Tariffs on imports of foreign goods into the United States will cause the foreign companies to add the amount of the tariff to the prices they charge in the United States for those goods. Instead of putting a tariff on imported goods, we should ban importing them. Banning imported goods is better than putting tariffs on them because U.S. producers benefit from the reduced competition, and U.S. consumers don't have to pay the higher prices caused by tariffs. Briefly explain whether you agree with the student's reasoning.

Short Answer

Expert verified
While the student's argument regarding the effect of tariffs leading to price hikes by foreign companies has merit, the suggestion that banning imports would be more beneficial is debatable. It tends to overlook potential negatives such as higher domestic prices due to less competition, lack of variety in goods, and possible retaliation from other nations. Both tariff and ban policies have implications that need to be carefully considered. Economic policies should preferably balance the interests of both the producers and consumers.

Step by step solution

01

Understand the Argument

First, it's essential to comprehend the reasoning presented by the student. According to the student's logic, tariffs on foreign goods cause foreign companies to increase their prices in the United States. Therefore, the student is advocating for a complete ban on imported goods as it benefits U.S. producers by reducing competition and prevents U.S. consumers from paying higher prices due to tariffs.
02

Analyze the Tariff Argument

Next, evaluate the argument on tariffs. It's true that tariffs could lead to foreign companies increasing their prices to maintain profit margins. However, these higher prices may discourage U.S. consumers from purchasing these goods, which could negatively impact foreign companies' business and in theory, increase the market share for U.S. producers.
03

Analyze the Import Ban Argument

Next, evaluate the argument on banning imports. An import ban would indeed remove competition for U.S. producers and protect jobs within the domestic industries. However, it's important to consider the negative implications. Import bans can lead to higher prices for goods and services due to the lack of competition, which could negatively affect U.S. consumers. Additionally, banning imports can lead to a decrease in the variety of goods available, and other countries may retaliate by imposing their own restrictions on goods imported from the U.S.
04

Formulate an Opinion

Lastly, formulate an opinion based on the analysis. While both arguments carry some merit, there are negative implications to consider. Balancing the pros and cons, it seems that neither a complete ban on imports nor high tariffs would be beneficial in the long term. The best economic policy would likely involve a combination of strategies tailored to specific industries, ensuring that the interests of both producers and consumers are protected.

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