Q8. Evaluate the effectiveness of ar... [FREE SOLUTION]

Chapter 20: Q8. (page 430)

Evaluate the effectiveness of artificial trade barriers, such as tariffs and import quotas, as a way to achieve and maintain full employment throughout the U.S. economy. How might such policies reduce unemployment in one U.S. industry but increase it in another U.S. industry?

Short Answer

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The usage of artificial trade barriers will reduce unemployment in the import industry and increase unemployment in the export industry in the U.S. The tariff put a tax on imports, and import quotas restrict the quantity to import.

Step by step solution

Step 1. Artificial trade barriers

The artificial trade barriers are the barriers a country imposes to protect the domestic producer, i.e., tariff and import quotas. The tariff is the tax imposed on the imported product by the importing nation's government. The quotas are the limiting the number of imports of the products.

Step 2. Explanation

When the U.S. imposes a tariff or quota on imports, it creates a disturbance in its actual employment level. The foreign nations also impose some non-tariff barriers on U.S. goods; the U.S. export will reduce.

As the U.S. export reduces, the jobs in that sector will also reduce; thus, deviating from the full employment level. Hence, artificial trade barriers in the U.S. decrease unemployment in the import sector as the domestic import substitution production increases and increase unemployment in the export sector.