Question

3. With the election of Donald Trump as President of the United States, his pledge to renegotiate or discard the North American Free Trade Agreement (NAFTA) may be a key element of his economic policy. Some of the states where he performed better than expected, including Pennsylvania, Michigan, and Ohio, are termed “Rust Belt” states. These states have seen their manufacturing sectors shrink significantly since the 1980s, which some economists blame in part on NAFTA and trade with other countries.

a. If NAFTA is discarded, and tariffs are increased on products from Mexico, Canada, and other countries, what would be the effect on producers in the United States that competed with foreign competition? In your response, consider the effect of tariffs on prices and producer surplus. (6 points)

b. Can increasing tariffs actually help the US economy overall? Explain. (6 points)

c. Will discarding NAFTA necessarily hurt the US economy? Explain. (5 points)

Answer 1

a)Producers in US who earlier found intense competition due to NAFTA are now able to sell their products at affordable prices earning good profits.As the tarrifs on foreign goods coming to the country was increased thereby increasing the sales of the local producers.

b)The increasing tariffs will overall help the US economy on one side it increases the sales of the local producers thereby their standard of living on the other side people who prefer foreign goods will be prepared to buy those goods thereby giving the govt more income under tariffs

C)For any policy there are advantages and disadvantages discarding NAFTA will reduce the choice option for the US people many of them will be forced to buy local products which they don't prefer and also no much selection is available for the customers