2. Trade creation and trade diversion Suppose that with free trade, the cost to the United States of importing a backpack from Mexico is $10.00, and the cost of importing a backpack from China is $9.00. A backpack produced in the United States costs $14.00. Suppose further that before NAFTA, the United States maintained a tariff of 60% against all backpack imports. Then, under NAFTA, all tariffs between Mexico and the United States are removed, while the tariff against imports from China remains in effect. Assume that the tariff does not affect the world price of backpacks. In the following table, indicate which country the United States imported backpacks from before NAFTA. Then indicate which country the United States imported backpacks from under NAFTA. Check all that apply. (Note: Leave the row blank if the United States doesn't import from either country.) Scenario Before NAFTA Under NAFTA United States Imports from... Mexico China 0 0 0 0 In the following table, indicate whether each stakeholder gains, loses, or neither gains nor loses as a result of NAFTA. Neither Gains O O O O Stakeholder Mexican producers U.S. government Chinese producers Consumers in the United States This is an example of trade Gains O O O O Los O O O Loses resulting from a regional agreement.
2. Trade creation and trade diversion Suppose that with free trade, the cost to the United States of importing a backpack from Mexico is $10.00, and the cost of importing a backpack from China is $9.00. A backpack produced in the United States costs $14.00. Suppose further that before NAFTA, the United States maintained a tariff of 60% against all backpack imports. Then, under NAFTA, all tariffs between Mexico and the United States are removed, while the tariff against imports from China remains in effect. Assume that the tariff does not affect the world price of backpacks. In the following table, indicate which country the United States imported backpacks from before NAFTA. Then indicate which country the United States imported backpacks from under NAFTA. Check all that apply. (Note: Leave the row blank if the United States doesn't import from either country.) Scenario Before NAFTA Under NAFTA United States Imports from... Mexico China 0 0 0 0 In the following table, indicate whether each stakeholder gains, loses, or neither gains nor loses as a result of NAFTA. Neither Gains O O O O Stakeholder Mexican producers U.S. government Chinese producers Consumers in the United States This is an example of trade Gains O O O O Los O O O Loses resulting from a regional agreement.
Chapter1: Making Economics Decisions
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Transcribed Image Text:2. Trade creation and trade diversion
Suppose that with free trade, the cost to the United States of importing a backpack from Mexico is $10.00, and the cost of importing a backpack from
China is $9.00. A backpack produced in the United States costs $14.00.
Suppose further that before NAFTA, the United States maintained a tariff of 60% against all backpack imports. Then, under NAFTA, all tariffs between
Mexico and the United States are removed, while the tariff against imports from China remains in effect. Assume that the tariff does not affect the
world price of backpacks.
In the following table, indicate which country the United States imported backpacks from before NAFTA. Then indicate which country the United States
imported backpacks from under NAFTA. Check all that apply. (Note: Leave the row blank if the United States doesn't import from either country.)
Scenario
Before NAFTA
Under NAFTA
United States Imports from ...
Mexico
China
0
0
In the following table, indicate whether each stakeholder gains, loses, or neither gains nor loses as a result of NAFTA.
Loses Neither Gai nor Lose
Stak older
Mexican producers
U.S. government
Chinese producers
Consumers in the United States
This is an example of trade
Gains
O
O
C
O
O
resulting from a regional agreement.
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