Chapter 34: Problem 40

If trade barriers hurt the average worker in an economy (due to lower wages), why does government create trade barriers?

Short Answer

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In conclusion, governments create trade barriers for various reasons such as protecting domestic industries, encouraging domestic production, increasing government revenue, and achieving political objectives. Although trade barriers may result in lower wages for the average worker, these other factors can offset the negative impact and potentially benefit the economy and workers in the long run.

Step by step solution

Introduction

Trade barriers, such as tariffs, quotas, and other restrictions on foreign trade, are implemented by governments for various reasons. While these measures may lead to lower wages for the average worker in an economy, there are often other factors at play that influence a government's decision to create trade barriers. In the following steps, we will evaluate some of these reasons.

Protecting Domestic Industries

One reason for implementing trade barriers is to protect domestic industries from foreign competition. In the short term, this can lead to higher profits for these industries, as they will have a larger share of the domestic market. By protecting domestic industries, the government may be seeking to preserve jobs in these sectors, which could offset the negative impact of lower wages due to trade barriers.

Encourage Domestic Production

Another reason for implementing trade barriers is to encourage domestic production. If domestic industries are more competitive due to reduced competition from foreign imports, this can lead to an increase in production and overall economic growth. While lower wages might be a concern for the average worker, it's possible that the increase in production and economic growth can help compensate for this in the long run.

Increase Government Revenue

Trade barriers, such as tariffs, can serve as a source of revenue for the government. These additional funds can be used to finance public services and infrastructure projects, which can benefit the average worker indirectly by improving overall living standards. So, even though trade barriers may result in lower wages, the revenue they generate could have a positive impact on the average worker's quality of life.

Political Reasons

Sometimes, trade barriers are implemented due to political considerations and international negotiations. Governments may use trade barriers as bargaining chips during trade negotiations or as a means to exert political pressure on another country. While these political objectives may not directly benefit the average worker, they could have long-term implications for the country's global standing and economic development.

Conclusion

In conclusion, while trade barriers can negatively impact the average worker's wages, there are multiple reasons why governments create trade barriers, such as protecting domestic industries, encouraging domestic production, generating revenue, and achieving political objectives. The overall impact on the economy and the average worker will depend on the specific context and the balance of these factors.

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