International Trade?

Question

Can someone please comment on this with detail and the right approach. Thank you.


Senator Ernest Hollings once wrote that consumers do not benefit from lower priced imports. Glance through some mail order catalogs and you'll see that consumers pay exactly the same price for clothing whether it is U.S. made or imported.

Answer 1

The correct answer is that Senator Hollings is an idiot. In his example (which is statistically useless btw, being a sample size of ONE), what Hollings misses is that yes, the domestic and imported products are retailing at the same prices -- but that's only because price competition from the cheaper imports forced the domestics to cut their prices to match.

Obviously, a catalog is not going to contain two identical competing products carrying two substantially different prices, will it? Everyone would just buy the cheaper version. That would be a waste of print space. The domestic supplier would have to lower their prices to compete and be in the catalog.

The benefit to consumers is that, if there were no imports, then that catalog's domestic products would surely be higher priced than is the case with imports available.

Answer 2

I was an economics major in college and am working towards my MBA now - I dont know if that qualifies me or not to answer but...here goes: I think it is trying to show that although the cost of the products may be lower - that only will benefit the company or the middle man - the margin will be absorbed and the lower cost will be eroded before it gets to the consumer. If a shirt can be sold for $25 in the US, most consumers are not willing to pay a premium for US made goods so - a shirt is a shirt. Therefore there is no need to price clothing differently. So if they can import clothing from another country for less, they will make more. Ultimately, since the consumer does not benefit from the comparative advantage that China may have in making clothing, they technically do not benefit. All the benefit is absorbed by the company/middleman etc.

I hope this helps.