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Suppose a reduction in trade costs raises Canadian imports of cars from the U.S. as well...

Suppose a reduction in trade costs raises Canadian imports of cars from the U.S. as well as exports of agricultural goods to the U.S. Explain how this reduction in trade costs will a¤ect auto industry workers in Canada.

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Answer #1

A reduction in trade costs raises Canadian imports of cars from the U.S. as well as exports of agricultural goods to the U.S. This means that the more of agricultural goods would be produced and exported to US. And cars would be imported to Canada. So less of domestic production of cars would take place than earlier. This would lead to less of labour requirement in the auto industry in Canada.
So less would be employed and hence a decrease in the employment rate would be seen in auto industry in Canada because of less of demand.

Hence when the trade costs reduce , Canada will import more of cars and hence wages and emploiyment in auto industry in Canada would decline.

(you can comment for doubts )

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