1. Tire production in the United States has been on the decline, in both absolute and relative terms. Imported tires are replacing most of the domestically manufactured tires in the market. Trade...

1. Tire production in the United States has been on the decline, in both absolute and relative terms. Imported tires are replacing most of the domestically manufactured tires in the market. Trade unions in the United States have claimed that over 7,000 jobs have been lost due to Chinese tire imports.

2. Suppose that there are two countries, X and Y, both of which have experienced trade deficits for a few years. To finance trade deficits, the countries have to borrow foreign funds, but their fund uses are quite different from each other. Country X spends most of the borrowed funds for consumption while country Y invests the borrowed funds. Given this information, suggest one possible benefit and cost of trade deficit for the two countries. Do you think the blogger’s conclusions are entirely correct? Explain.