Question

Suppose that with free trade, the cost to the United States of importing a sweater from Mexico is $20.00, and the cost of importing a sweater from China is $18.00. A sweater produced in the United States costs $25.00. Suppose further that before NAFTA, the United States maintained a tariff of 15% against all sweater imports. Then, under NAFTA, all tariffs between Mexico and the United States are removed, while the tariff against imports from China remains in effect. Assume that the tariff does not affect the world price of sweaters.
Before NAFTA, the United States imported sweaters from: _________

Answer 1

Based on the price of sweaters, it was likely that because NAFTA, the United States imported sweaters from China.

Why did the U.S. import sweaters from China?

Nations will generally import from nations that charge the cheapest amount for the goods and services being imported.

Before NAFTA made Mexican sweaters cheaper thanks to the removal of tariffs, Chinese sweaters were cheaper at $18.00 which means the U.S. likely imported sweaters from China.

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