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Chapter 21: Q. 40 (page 523)

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

Short Answer

Expert verified

To protect the domestic industry and hence the jobs of people dependent on it.

Step by step solution

01

Step1. Introduction

Trade barriers are methods which are taken up to protect the domestic industry from the foreign competition.

02

Step2. Explanation

Trade barriers although reduce the average wages in the country, it still is important to impose them because it is important to protect the domestic industries to let them grow and develop and become self reliant. It is also important to protect the jobs of the workers working in this domestic industry.

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Most popular questions from this chapter

You have just been put in charge of trade policy for Malawi. Coffee is a recent crop that is growing well and the Malawian export market is developing. As such, Malawi coffee is an infant industry. Malawi coffee producers come to you and ask for tariff protection from cheap Tanzanian coffee. What sorts of policies will you enact? Explain.

Why is the national security argument not convincing?

Why is trade a good thing if some people lose?

From the Work It Out "Effects of Trade Barriers," you can see that a tariff raises the price of imports. What is interesting is that the price rises by less than the amount of the tariff. Who pays the rest of the tariff amount? Can you show this graphically?

Show graphically that for any tariff, there is an equivalent quota that would give the same result. What would be the difference, then, between the two types of trade barriers?
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