Chapter 20: Problem 3

Explain how trade barriers save jobs in protected industries, but only by costing jobs in other industries.

Short Answer

Expert verified

In conclusion, trade barriers can save jobs in protected industries by limiting foreign competition and making domestic products more competitive, such as raising the price of imported goods or restricting their supply. However, this can lead to negative impacts on other industries, as trade barriers can increase their production costs and reduce their exports. For instance, a high tariff on imported steel can save jobs in the steel industry but lead to job losses in industries that rely on steel as an input like automobile and construction. Furthermore, countries implementing trade barriers may face retaliatory tariffs, negatively impacting other industries and leading to more job losses. Policymakers need to weigh the trade-offs when implementing trade barriers.

Step by step solution

Define trade barriers

Trade barriers are policies implemented by governments to restrict the flow of goods and services across borders. These can include tariffs (taxes on imported goods), import quotas (limits on the quantity of certain goods that can be imported), and non-tariff barriers such as regulations and subsidies.

Explain how trade barriers save jobs in protected industries

By implementing trade barriers, governments can protect domestic industries from foreign competition. This can lead to the preservation of jobs within the protected industries, as it makes domestic products more competitive against imported goods by raising their prices, limiting their supply, or imposing additional costs on imports. For example, a high tariff on imported cars can make domestically produced cars cheaper in comparison, which can lead to more demand for local cars. Consequently, this demand can save jobs in the domestic automobile industry by keeping production levels high.

Explain the negative effects of trade barriers on other industries

While trade barriers can save jobs in protected industries, they can also have negative repercussions on other industries. One reason for this is that they can increase production costs since imported inputs (required for the production process) become more expensive. This can lead to job losses in industries that rely on these imports as it may become unprofitable for firms to continue production or they may need to reduce costs, including the cost of labor. Another negative impact of trade barriers is that they can discourage international trade. As a result, countries implementing trade barriers may face retaliatory measures from trading partners, leading to reduced demand for their exports. This reduction in demand can cause job losses in the export-oriented industries.

Provide an example to explain the concepts

Consider a government that introduces a high tariff on imported steel to protect its domestic steel industry. This can save jobs in the steel industry by making domestically produced steel more competitive than imports. However, industries that rely on steel as an input, such as automobile and construction industries, may face higher production costs since they now have to pay more for domestically produced steel. This could lead to job losses in these industries as companies may have to cut costs to maintain profitability. Additionally, the countries affected by the steel tariff may implement retaliatory tariffs on other goods exported by the country that initiated the steel tariff, negatively affecting other industries and further leading to job losses.

Conclusion

In conclusion, trade barriers save jobs in protected industries by limiting foreign competition and making domestic products more competitive. However, this comes at a cost to other industries, which may face increased production costs and reduced export opportunities. It is essential for policymakers to consider the trade-offs and potential negative impacts of trade barriers on the overall economy when implementing such measures.