Question

Assume that the United States has a comparative advantage in aircraft manufacture and India has a comparative advantage in producing textiles. Explain who in the United States would gain and who might lose from dismantling trade barriers between the United States and India.

Answer 1

Answer:

1. Explain who in the United States would gain?

The government of the United States will gain from the Import duties that will be charged on the Indian textiles.

2. Who might lose from dismantling trade barriers between the United States and India?

The USA will lose if trade barriers are dismantled.

The United States will lose from dismantling trade barriers because the Indian textile will be massively imported in the country thereby crippling the growth of the local textile manufacturing companies in the United States. India has a comparative advantage over the USA in the manufacturing of textiles, which are in constant demand compared to that of the aircraft which are rarely demanded.

Explanation:

1. The government of the United States will gain from the Import duties that will be charged on the Indian textiles. The government will make huge revenues from the import duties since India will manufacture the textiles at the cheapest costs per unit and influx the USA with affordable and quality clothing.

2. The USA will lose if trade barriers are dismantled.

The United States will lose from dismantling trade barriers because the Indian textile will be massively imported in the country thereby crippling the growth of the local textile manufacturing companies in the United States. India has a comparative advantage over the USA in the manufacturing of textiles, which are in constant demand compared to that of the aircraft which are rarely demanded.