Question

Please answer both of the following questions:

(a) Under what circumstances would a tariff actually make a country better off?

(b) In what industry of the U.S. would you *increase* tariffs?

You may wish to review the USDA article posted in this module for inspiration or perspective.

Answer 1

a) The imposition of tariffs will make a country better off if

• there is an increased unemployment

When the domestic market is flooded with foreign goods the domestic industries will have to face a great competition and will pose a serious threat to the domestic industries. The enterpreneurs will be forced to reduce the size of the workforce and this will leave many people unemployed.

Now, when tariffs are imposed it will reduce the consumption of foreign goods by the domestic consumers. This will increase the production of the domestic industries and this will increase the employment opportunities

• there is the presence of infant industries.

Infant industries face competition from the foreign companies. So, when tariffs are imposed it will increase the prices and the demand of those goods will automatically decreased. This will create market for domestically produced goods.

b) A major share of the income of the US economy comes from services. This industry contributes more than any other sector. An increase in tariff in this industry will reduce the competition from foreign industries and will increase the profits.