After the US imposed 25% tariffs on Chinese goods like furniture and footwear, imports of those goods from China fell sharply. Which outcome would confirm that the tariffs achieved their intended industrial policy goal - and which outcome actually materialized?

Question

BlackTom AI · Accepted Answer

Industrial policy’s objective was to boost US domestic production so that higher-cost foreign suppliers are replaced by domestic firms producing furniture and footwear.

1. Relevant concepts
- Tariff: a tax on imports raises the foreign-good price to domestic buyers by the tariff rate.  
- Import substitution vs. trade diversion: tariffs can either stimulate domestic production (import substitution) or cause buyers to switch to other foreign suppliers (trade diversion).  
- Relative prices and capacity: if non-Chinese suppliers can sell below the tariff-inflated Chinese price, imports will shift rather than domestic production expanding.

2. Step-by-step reasoning
- Suppose a Chinese good has world price P_c. A 25% tariff raises the price faced by US buyers to P_c × 1.25.  
- If suppliers in Vietnam, Mexico, India offer price P_o such that P_o < P_c × 1.25, then US buyers will switch to those suppliers.  
- Domestic producers will expand only if their marginal cost ≤ P_c × 1.25 and they have spare capacity / can invest quickly. If domestic firms face higher costs or cannot scale, they won’t fill the gap.

3. Intermediate calculation example
- Example: P_c = $100 → tariff raises to $125. If Vietnam sells at $110, US importers switch to Vietnam because $110 < $125. Domestic producer with cost $140 cannot compete, so production stays low.

4. Why the correct answer is correct
- The intended outcome (industrial policy goal) is that US domestic production rises to fill the gap. The actual observed outcome was trade diversion: imports from China fell but were largely replaced by imports from Vietnam, Mexico, and India; US domestic production did not substantially expand. That matches the logic above: alternative low-cost foreign suppliers filled demand.

5. Why other options are incorrect
- Option A: merely reducing US imports from China is not the industrial-policy goal; it’s a means, not the intended domestic production increase.  
- Option C: tariffs do not necessarily narrow the trade deficit; they can change bilateral flows but overall deficit depends on many factors.  
- Option D: the statement that China would lower its tariffs is wrong—China mostly retaliated rather than lowering barriers; retaliation is not the intended domestic-production outcome.

6. Conclusion
The intended outcome was higher US domestic production; the actual outcome was import diversion to Vietnam, Mexico, and India with little domestic expansion. This confirms the provided answer.

After the US imposed 25% tariffs on Chinese goods like furniture and footwear, imports of those goods from China fell sharply. Which outcome would confirm that the tariffs achieved their intended industrial policy goal - and which outcome actually materialized?单项选择题

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