Question

Suppose the country of Greendale is relatively capital abundant and has free trade with another country. Suppose now that the president of Greendale, President Pelton, is considering a policy that will tax imports, thus increasing the price of imported goods. Would a union that represents the interests of labor be in favor of such a policy? Why or why not?

Answer 1

Yes, labor union will be in favor of all the imports that the President plan to impose. As a capital abundant nation Greendale is importing labor intensive goods and export capital intensive goods. If tariffs are imposed in the market then cost of the labor intensive goods that are imported will rise and demand for the imported goods will fall. This will increase the demand for the labor intensive goods that are produced locally and that will increase the employment in the local market. Hence, the local labor unions will support the tariffs that are imposed in the imported goods.