Question

Assuming you are a senior economist at a Trade Policy Center in Country Z. The country produces steel and manufactures autos domestically. The auto industry imports cheap steel for further production of autos. Assume that director of the Center wants to impose tariffs on imported steel. Briefly explain to the director why a tariff on imported steel may lead to job gains for domestic steel workers but can at the same time lead to job losses for domestic auto workers.

Answer 1

First of all we should know that what is "tariff". tariffs are custom taxes that government levy on imported goods.the tax is a precentage of the total cost of the product, including freight and insurance.it raises the price of import.those higher prices gives an advantage to domestic products within the same market.they are used to protect a nation's industry but tariffs are a barrier to international trade.over time, they reduce the business for all countries.countries charge different tariffs depending on the industry they are protecting. Countries waive tariffs when they have free trade agreement with each other.

Now coming to your question that a country Z is producing steel and manufacturing autos domestically and it auto industry imports cheap steel for further production of autos and the director of the center wants to impose tariffs on imported steel.if the director will impose tariffs on imported steel then obviously it will lead to protection of steel industry because domestic steel will be available at lower prices because imported steel price will include tariffs which will make it much costly and it will lead to job gains for domestic steel workers but on the other hand it will lead to job losses for domestic auto workers because country Z was buying cheaper steel for production of more autos but after tariffs they will reduce import of steel because it has now become costlier than before tariff was imposed so auto industry production will reduce because of tariffs and it can lead to job losses for domestic auto workers.

So tariffs have their pros and cons. Like above example if one domestic industry is benefitting from it then it can harm other as well.