Question

How might protective tariffs reduce both the imports and the exports of the nation that levies tariffs? How might import competition lead to quality improvements and cost reductions by U.S. firms?

Short answer

The import tariff leads to a decrease in the nation's export that levies tariffs, like every other nation also imposes import tariffs.

The import competition leads to innovative ways of production; thus, it reduces cost and improves the quality of the U.S. firms.

Step-by-step solution

Step 1. Protective tariff

The government imposes tariffs to protect the domestic producer; thus, reducing the number of imports. The other nations also impose tariffs to protect their producers as a response, reducing the export of the nation that levied tariffs. Thus, protective tariffs reduce both the imports and the exports of the nation.

Step 2. Import competition

The import competition improves the quality of the U.S. goods to gain shares in the global market. The U.S. firms have to make their imports different from other nations' firms. As the quality of the product increases, it will also increase the export; thus, as export increases, then production also rises. The increase in the production level also decreases the cost of production as the firm competes with the cost side.