The movement to free international trade is most likely to generate short-term unemployment in which industries:
|a. Industries in which there are neither imports nor exports|
b. Import-competing industries.
c. Industries that sell to domestic and foreign buyers
d. Industries that sell to only foreign buyers
The Correct Answer Is:
b. Import-competing industries.
Correct Answer Explanation: b. Import-competing industries.
The movement to free international trade is likely to generate short-term unemployment in import-competing industries (Option b). These are industries that produce goods and services that can also be imported from foreign countries.
When trade barriers are reduced or eliminated, foreign goods become more accessible and often cheaper for consumers. As a result, domestic producers in these industries may face increased competition from foreign imports, leading to a decline in demand for their products.
In the short term, this increased competition can lead to a decrease in production and employment within these import-competing industries. This is because consumers may choose to purchase the cheaper imported goods, causing a decrease in demand for domestically-produced alternatives.
As a consequence, businesses in these industries may need to downsize their workforce or even shut down altogether.
Explanation for Incorrect Answers:
a. Industries in which there are neither imports nor exports:
Industries that have little or no involvement in international trade (neither importing nor exporting) are less likely to experience short-term unemployment due to changes in trade policies. These industries primarily serve a domestic market and are not directly affected by shifts in international trade dynamics.
For example, a local service provider like a hair salon or a fitness center typically doesn’t engage in international trade, so they are less impacted by changes in trade policies. Therefore, this option is less likely to face short-term unemployment.
c. Industries that sell to domestic and foreign buyers:
Industries that cater to both domestic and foreign markets may have a more diversified customer base. This diversity can act as a buffer against sudden changes in demand or market conditions.
For example, an aerospace company that sells airplanes both domestically and internationally may be better able to weather fluctuations in demand from one market if the other remains stable.
Therefore, while they may face some challenges in the face of trade policy changes, they are less likely to experience significant short-term unemployment compared to import-competing industries.
d. Industries that sell to only foreign buyers:
Industries that primarily sell to foreign buyers are already engaged in international trade. They are likely to have structures in place to navigate international markets and adapt to changes in trade policies. These industries are generally less impacted by shifts in trade policies, as they have already established a market presence abroad.
For example, a company that exclusively exports a unique product to foreign markets is less likely to face short-term unemployment due to changes in trade policies, as their business model is already geared towards international trade.
In summary, while these industries may face some challenges due to changes in trade policies, they are less likely to experience the same level of short-term unemployment as import-competing industries, which are more directly affected by increased international competition.
It’s important to note that while import-competing industries may experience short-term challenges, the overall goal of free international trade is to promote long-term economic growth and efficiency by allowing countries to specialize in the production of goods and services in which they have a comparative advantage.
This leads to increased overall prosperity, which can ultimately benefit a broader range of industries and workers in the long run.