Question

6. China, India, and other emerging market economies are exporting increasingly sophisticated goods to the United States. (By “sophisticated,” I mean their production processes are capital-intensive and/or human capital-intensive.) Explain how this phenomenon might be interpreted using Lerner diagrams. In your answer, indicate whether you think this phenomenon spells doom for the U.S. manufacturing sector.

Answer 1

Yes , manufacturing exports from emerging countries would spell a doom for US manufactures.

Marshall Lerner condition states that elasticity of import plus elasticity of exports is greater than 1.

* Increased manufacturing imports will reduce the employment opportunity in US.

* A Large part of income will be spend on imports which will worsen trade defecit . Trade defecit will have spillover on other sector.

* Gdp growth rate will be effected . This will lower GDP .