CFA Level I · CFA Level I Exam · International Trade
Economists most likely criticize the argument that tariffs should be used to protect domestic jobs in an industry because:
Economists criticize job protection because saved jobs in the protected industry are often offset by job losses elsewhere and by higher consumer costs. Tariffs raise domestic prices, reduce other spending, and can invite retaliation, so the net employment and welfare effects are typically negative.
- Atariffs always lower the domestic price of the protected good
- Bjobs saved in the protected industry are often offset by job losses elsewhere and higher consumer costsCorrect
- Cprotection raises the export competitiveness of every domestic industry
Explanation
Protection raises prices for consumers and users of the protected good, reducing their spending and hurting other industries, including exporters facing retaliation or costlier inputs. Tariffs raise, not lower, domestic prices, and they do not improve competitiveness across industries.
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