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Free trade policies

Question 1: Suppose that a country announces that it is moving toward free trade by reducing its tariffs on intermediate inputs while maintaining its tariffs on final goods. What is your evaluation of the announced "free-trade" direction of the country's policy?

Question 2: A dollar appreciation against the Swiss franc is no guarantee that the dollar will "go further" than it previously did in acquiring Swiss goods. Do you agree ? Explain.

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Question 1: Suppose that a country announces that it is moving toward free trade by reducing its tariffs on intermediate inputs while maintaining its tariffs on final goods. What is your evaluation of the announced "free-trade" direction of the country's policy?

"Moving toward free trade" are the key words here. Certainly it is a step in the right direction, but obviously the country's trade policy is still to protect its finished goods producers. The overall result will be still to reduce the cost of finished products by increasing competition in the intermediate inputs. With more foreign competition in this intermediate market, domestic producers will need to price their intermediate inputs to the finished good market lower. Finished goods have the highest value added and so can still help protect the mature industries of the country.

A good example would be in the case of US clothing manufacturing. Tariffs for finished products are high (about 15%, depending on the fabric, etc.). So, this helps protect the clothing manufacturers of the US. But ...

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What is your evaluation of the announced "free-trade" direction of the country's policy?

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