SCENARIO: ELECTRIC FAN TRADE
u.S.firms can produce and sell electric fans for $25.The United
States can also import electric fans from China at $40 each and
From Canada at $45 each.Electric fans made in the United
States, China, and Canada are identical.Currently, the United
States imposes a 30% tariff on imported electric fans.
Reference: Ref 112
(Scenario: Electric Fan Trade) Now suppose that the United
States forms a freetrade area (NAFTA) with Canada and Mexico.
From which country will the United States import fans?

Question

SCENARIO: ELECTRIC FAN TRADE
u.S.firms can produce and sell electric fans for $25.The United
States can also import electric fans from China at $40 each and
From Canada at $45 each.Electric fans made in the United
States, China, and Canada are identical.Currently, the United
States imposes a 30% tariff on imported electric fans.
Reference: Ref 11­2
(Scenario: Electric Fan Trade) Now suppose that the United
States forms a free­trade area (NAFTA) with Canada and Mexico.
From which country will the United States import fans?

Quizplus · Accepted Answer

The United States will import fans from Canada, as it is now part of the free-trade area (NAFTA) enabling the removal of the previous 30% tariff on imported electric fans from Canada. It is unlikely that the US will import from China as it is more expensive than the domestic production cost of $25 and the US will now source from Canada to avoid the 30% tariff.