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Use your knowledge about trade policy to evaluate the following statements: “Automobile manufacturing jobs are heading...

Use your knowledge about trade policy to evaluate the following statements:

“Automobile manufacturing jobs are heading to Mexico because wages are so much lower there than they are in the United States. As a result, we should implement tariffs on automobiles equal to the difference between U.S. and Mexican wage rates.”

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Answer #1

I do not support the statement.

Trade between US and Mexico would benefit both the countries. Mexico is a labor-intensive country and US is a capital intensive country. So, Mexico should specialize in labor-intensive goods and USA should specialize in capital-intensive goods. This would help both the countries. This is beneficial for USA because US automobile firms can achieve cost advantage because of import of cheap spare parts. Also, US consumers are benefited as they can buy automobiles at a lower price.

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