Comparative Advantage, Exchange Rates, and International Trade

Comparative Advantage, Exchange Rates, and International Trade

I support the move by the government to enact tariffs to protect American industries. First, due to import competition, the initially uncompetitive domestic industry would not be able to start production. Therefore, government tariffs will protect domestic industries from foreign competition (Schumacher, 2012). For instance, protection allows domestic industries to begin production and over time, they will become competitive. Second, protection would help to prevent foreign countries from gaining control of key industrial process and technology. Third, tariffs will help to protect consumers from dangerous products from foreign countries (Schumacher, 2012).

States of California in the U.S. specializes in the manufacturing of airplanes. The U.S. exports airplanes to China, Britain, Japan, France and United Arab Emirates (Nordrum, 2015). The U.S. is good at manufacturing airplanes because of the availability of resources and skilled workforce. In addition, the technical efficiency of the region gives it an added advantage.

The exchange rate system affects imports and exports in the following way. Depreciation of the domestic currency stimulates exports and makes imports more expensive (Schumacher, 2012). Therefore, firms exporting goods and services benefit from weak domestic currency. Conversely, an appreciation makes exports more expensive. This reduces competition in exporting companies. Similarly, a strong domestic currency makes imports cheaper (Schumacher, 2012).



Nordrum, A. (June 05, 2015). US economy 2015: Check out the top imports and exports in every US state. Retrieved October 29, 2016 from

Schumacher, R. (2012). Free trade and absolute and comparative advantage: A critical comparison of two major theories of international trade. Potsdam: Universitätsverl.

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