What do economists mean when they say that US downstream sectors suffered substantially from US-China trade war? Select one – the most appropriate answer.

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Question restatement: What do economists mean when they say that US downstream sectors suffered substantially from the US-China trade war? Select one – the most appropriate answer.

Option 1: 'Along with protected sectors there are export-oriented sectors that were hit by countermeasures from foreign economies, especially those having downstream wages.' This statement presumes that export-oriented sectors with downstream wages were the main victims of countermeasures, but it focuses on export-oriented activity and wages rather than the mechanism by which downstream sectors suffer via upstream price transmission. In many analyses, downstream impact is driven by upstream price changes and input costs, not primarily by export-oriented demand shifts.

Option 2: 'Mostly upstream sectors were protected, so downstream industries appeared to be in much more sever conditions because of the increase in wage that essentially increased their cost.' Here the reasoning hinges on wages and the notion that upstream protection drives downstream pain through wage increases. While input costs can rise, the core channel is typically through higher prices for intermediate goods raised by protection, not primarily through wage-driven costs in downstream sectors. This makes the mechanism described here less central or precise.

Option 3: 'Along with protected sectors there are sectors that use the goods produced by protected manufacturers as intermediates and since their price rose, they lost their output and thus jobs.' This captures the standard transmission mechanism: protection of certain sectors raises the price of inputs (intermediates) used by other sectors. When downstream or intermediary-using sectors confront higher input costs, their output and employment can contract. It aligns with the common explanation of how protection in one part of the chain can ripple to downstream users of protected goods.

Option 4: 'Unlike downstream sectors upstream industries were mostly oriented on imported intermediates whose price dropped and that gave them additional competitive advantages.' This option posits falling input prices from imported intermediates, which would reduce costs for upstream activities. However, the statement contradicts the idea that downstream sectors were substantially hurt; it also misstates the typical trade-war dynamics where tariff-induced price increases on inputs often harm downstream users, not reduce their costs.

Option 5: 'No correct answer.' Given the plausible mechanism described in Option 3—ripple effects through higher input costs for sectors that rely on protected intermediates—the claim of a correct answer is supported by standard economic reasoning about input-output linkages during protectionist episodes. Therefore, this option is not accurate.

In summary, the most coherent explanation that aligns with how protection in one part of the economy can elevate prices for intermediate goods and thereby suppress output and employment in downstream users is described in Option 3. The other options misstate the primary transmission channels or rely on less central factors like wage effects or the behavior of upstream versus downstream groups that do not match typical trade-war impact channels. The overall interpretation emphasizes input-cost pass-through and demand-supply chain linkages as the mechanism for downstream harm.

econ_420_120255_249094 Lesson 7 Quiz

What do economists mean when they say that US downstream sectors suffered substantially from US-China trade war? Select one – the most appropriate answer.

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