Chile and the United States use capital and labor to produce wheat and automobiles. The United States is capital abundant, and Chile is labor abundant. Wheat production is more labor intensive than automobile production. What is the most important reason why U.S. workers might oppose United States-Chile free trade?

Question

Quizplus · Accepted Answer

Since wheat production is more labor intensive than automobile production, the increase in free trade between the United States and Chile would result in increased competition for wheat production in the United States. This could lead to a decrease in demand for labor in the United States and ultimately, a reduction in wages for workers. Therefore, U.S. workers might oppose United States-Chile free trade because their wages are expected to fall.

Chile and the United States Use Capital and Labor to Produce