Business Degree Certification Practice Test

What is a likely consequence of the U.S. government imposing tariffs on foreign steel?

1. Decrease in price of U.S. produced steel

2. Decrease in price of imported steel

3. Increase in employment in U.S. steel industry

4. Decrease in government tax revenue

The correct answer is: Increase in employment in U.S. steel industry

Imposing tariffs on foreign steel raises the cost of importing steel from other countries. As a result, imported steel becomes more expensive for manufacturers and consumers. This situation can lead to a competitive advantage for U.S. steel producers, whose prices will likely decrease relative to those of foreign steel, making their products more attractive to buyers. Consequently, with the tariffs making foreign steel less appealing, domestic demand for U.S.-produced steel increases, which can lead to greater production and potentially higher employment within the U.S. steel industry as companies ramp up operations to meet this heightened demand. While the other options may seem plausible at a glance, they do not accurately capture the full economic implications of such tariffs. For example, a decrease in the price of U.S. produced steel is unlikely, as the higher prices of foreign steel may stabilize or even increase domestic prices. Similarly, a decrease in the price of imported steel contradicts the purpose of tariffs, which is to raise prices on foreign goods to protect domestic industries. A decrease in government tax revenue would typically be associated with lowered economic activity, but tariffs are designed to increase government revenue through the taxes collected on imports. Therefore, the outcome of increased employment in the U.S. steel industry aligns most closely with the