Question

5. Why would the US Congress enact trade restrictions if the costs to society exceed the benefits to society? 6. What are the benefits of foreign investment in the United States? 7. What are the major determinants of imports?

Answer 1

5. Tariffs hurt the country that introduces them, but in all but the rarest situations, because their costs outweigh their benefits. Tariffs are a boon for domestic producers now facing decreased domestic competition. The reduced demand leads to higher prices. Domestic producers ' sales should also increase, with everything else being equal. The increased production and cost allows more employees to be employed by domestic producers, resulting in higher consumer spending. The tariffs also increase government revenue that can be used to the economy's benefit. Tariffs, however, are expensive. Now the cost of the good has risen with the tariff, the customer is forced either to buy less of this good or to buy less of some other good. The price increase can be seen as a decline in disposable profits. When consumers buy fewer, domestic producers sell less in other markets, leading the economy to decline. Generally speaking, the gain caused by increased domestic production in the tariff-protected sector plus increased government revenue does not compensate for the losses caused by higher prices affecting customers and the expense of implementing and collecting the tariff.

6. Creates new jobs: U.S. foreign affiliates (majority-owned) employ about 5.3 million U.S. workers, or 4.6 percent of private industry jobs. More than 3,300 new projects were announced or opened by foreign companies between 2003 and 2007, resulting in investment of $184 billion and around 447,000 new jobs.

Boosts Wages: U.S. foreign business partners tend to pay higher wages than other U.S. firms. Internationally owned companies fund a $364 billion annual U.S. workforce with an average annual salary of over $68,000 per worker. By average, foreign firms ' U.S. branches pay 25% higher wages and benefits than all U.S. institutions.

Increases U.S. exports: U.S. companies use distribution networks and experience of international preferences from multinationals to sell to new markets. Around 19% of all U.S. exports ($195 billion) come from foreign companies ' U.S. subsidiaries.

7. Imports are generally considered to be defined by: 1. Domestic income levels and dynamics; 2. Rate and dynamics of each portion of GDP (investment, consumption, government spending, exports) as distinct import drivers; 3. Price competition of domestic production, usually affected by fluctuations and exchange rates as well as inflation differentials between countries and foreign nations; 4. Non-price competitiveness of domestic production, such as product quality, technological innovation, design and promotion

5. Local actions towards foreign goods; 6. Changes in domestic demand and supply patterns, including supply chain organization and distribution channel ownership; 7. Historical relations to countries of origin; 8. Structural developments in economic integration with other countries