Question

From reading this article, what are some of the misconceptions of international trade and what are the unintended consequences of tariffs? explain.

http://www.businessinsider.com/what-is-free-trade-explained-trump-global-trade-war-2017-6

Answer 1

There are some misconceptions of international trade. The first misconception is that it takes out the jobs from the economy. International trade means job will go to the other countries that is not correct. Rather, it is an issue of efficiency and productivity. The second misconception is that it exploits the domestic industries and never let them grow. So, domestic industrial structure is destroyed. Rather, it brings quality, technology and now jobs if FDI takes place, the good aspects of the international trade. The third misconception is that labor force migration will take place as international trade agreement and they will take up the domestic jobs. Rather, these people will create new demand and new employment opportunities will be created.

Unintended consequences are as follows:
1.   It will bring inefficiency and higher price of the products of protected industries and consumers will suffer.
2.   Demand for the products of other sectors will come down as more portion of disposable income will be spent upon the goods and services of protected industries.
3.   Job opportunities for non-protected industries will come down due to the lack of demand for their products and services.
4.   Similar action taken up by the other economies against the country, inhibiting the growth of exports of the domestic players.