Policymakers and economists have been trying to come up with the best policy mix to improve economic conditions in the United States following the large-scale recession. In class we've discussed the costs and benefits of international trade and concluded that in the long run, all who participate in free trade achieve gains. However, the short run costs are too large to ignore. Many policymakers have pushed for a more protectionist stance to help U.S. industries recover. Consider the following proposal: The U.S. will no longer import goods or services from other countries. It will instead focus on exports that employ American workers in domestic manufacturing plants. All products sold in the U.S. will bear the stamp “Made in the USA” on their label. Discuss the different types of protectionist measures (tariffs, quotas, or ending trade) and their potential impacts on the United States’ reputation with the rest of the world. Is there a likelihood of a trade war? Did the Smoot-Hawley tariff work as intended? There should be a good comparison of the Smoot-Hawley tariff to the proposed policy to limit trade into the United States. Assess the pros and cons of this policy mix for the United States. Make sure to comment on the effect on GDP, inflation, and unemployment if the U.S. were to cut off international trade. Is this the best solution to get the U.S economy back to potential? If you were a policymaker, what changes would you make to this policy mix? How effective do you think your policy will be in restoring full employment? Or, should there be no intervention? If you argue for no intervention, what are the factors that lead you to believe in the success of a self-correcting mechanism?

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter21: International Trade And Finance

Section: Chapter Questions

Problem 10SQ

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Policymakers and economists have been trying to come up with the best policy mix to improve economic conditions in the United States following the large-scale recession. In class we've discussed the costs and benefits of international trade and concluded that in the long run, all who participate in free trade achieve gains. However, the short run costs are too large to ignore. Many policymakers have pushed for a more protectionist stance to help U.S. industries recover. Consider the following proposal:

The U.S. will no longer import goods or services from other countries. It will instead focus on exports that employ American workers in domestic manufacturing plants. All products sold in the U.S. will bear the stamp “Made in the USA” on their label.

Discuss the different types of protectionist measures (tariffs, quotas, or ending trade) and their potential impacts on the United States’ reputation with the rest of the world. Is there a likelihood of a trade war? Did the Smoot-Hawley tariff work as intended? There should be a good comparison of the Smoot-Hawley tariff to the proposed policy to limit trade into the United States.
Assess the pros and cons of this policy mix for the United States. Make sure to comment on the effect on GDP, inflation, and unemployment if the U.S. were to cut off international trade. Is this the best solution to get the U.S economy back to potential?
If you were a policymaker, what changes would you make to this policy mix? How effective do you think your policy will be in restoring full employment? Or, should there be no intervention? If you argue for no intervention, what are the factors that lead you to believe in the success of a self-correcting mechanism?

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