Trade Policy and Its Impact on Income Distribution

TradePolicy and Its Impact on Income Distribution

Incomeinequality can be very damaging to a country. Income inequalityprovides a good breeding ground for crime and other antisocialbehaviors, as well as impedes the growth and development of theeconomy. One of the best strategies that can be used to promote equalincome distribution is through the creation of good jobs to thecitizens of a country. Trade restriction can as well be used toprotect local industries thus encourage local investors to createmore jobs in the country.

Thisessay examines trade restriction and job creation as a federalstrategy to combat income inequality.


Shouldthe Federal government foster a more equal distribution of income?

Incomeinequality is one of the issues affecting the United States, and haselicited heated debates in the public and political spectrum onwhether the federal government is doing enough to tackle the issue ornot. Income inequality is the gap between the rich and the low incomeearners in the society, and may include revenues streams fromsalaries, wages, interests or dividends from shares. According to theinequality organization (2014) the income inequality in the U.S hascontinued to grow despite the growth of the economy.

Householdand Family Income

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Inaddition, despite of the growing economy, the wages of the Americans,after taking inflation into account, has continued to stagnate. Onthe other hand, even the wages that have changed with the change inthe economy do not reflect the exact strides that made by theeconomy. Nevertheless, there are various measures that can be takenby a government to promote equal income distribution. It is the roleof the federal government to ensure that the country is not facing ahuge gap in income distribution by implementing various policies andprograms to promote income redistribution in the country.

Accordingto Heathcote,Perri, &amp Violante, (2010), theU.S federal government has established diverse measures to counterincome inequality in the country. One of the policies that have beenenacted by the federal government is the use of a progressivetaxation system. Progressive tax system is taxation system where byindividual tax liability increases with the increase in the taxableincome. This means the high income earners in the country areobligated to pay higher taxes than low income earners. The federalgovernment enacted this policy to help ensure that people with highincomes are being deducted more money in order to help the governmentto have enough revenue to fund entitlement programs, such asMedicaid, Medicaid and social security.

Thefederal government offers assistance programs such as Federalunemployment insurance, Medicare, food stamps to the needyhouseholds. The social security fund is also another importantprogram that the federal government uses to give financial support tothe retirees, although members are also required to contribute to thefund during their working years.

Howeverone of the sectors that the federal government should be keen on topromote income equality is by making stable fiscal policies andproper economic management. This includes the establishment ofpolicies that promote domestic companies through trade restriction.In addition, to putting trade restrictions, the government should aswell set aside funds to help investors and also reduce corporatetaxes in the country (Autor,Katz, &amp Kearney 2008).

TradeRestrictions and Jobs Creation

Shouldthe Federal government pass trade restrictions or other measures tobring jobs that have been off shored back to the U.S.?

Passingtrade restrictions is one of the methods that are used to manage theeconomy of a country. The introduction of tariffs, quota andsubsidies are very important for serving both the economy and thepolitical objectives of a country. Trade restrictions serve toprotect the domestic industries and workers from foreign countriesand also help bring the jobs back into the country. According toKrebs et al (2005), trade restriction can be reduced through mutualagreements in terms of partnerships such as Trans-Atlantic TradePartnership (TPP).

Althoughfree trade is usually supported by international organizations, italso has its downside especially if the negotiation is not done on alevel ground. When not properly outlined, free trade can benefitbusinesses only thus leading to massive job loss and inequality inthe distribution of income (Krebset al 2007).Whensigning business agreements, governments should make trade accordsthat will help business environment to flourish equally for all thecountries in the partnership. This can help attract more localinvestors thus helps reduce unemployment as well boost the income inall the countries. According to Krebset al (2005), availability of jobs gives people options to choosethus forcing employers to offer competitive wages.


Incomeinequality is the gap between the high income earners and low incomeearners. The gap can be reduced using a progressive tax system aswell as exempting people with low incomes from paying direct taxes.However, the federal government should initiate programs that willenable the citizens to get good jobs in order to raise their incomelevels. One of the best ways is by enacting trade policies that willhelp create more jobs by protecting the local industries.


Autor,D. H., Katz, L. F., &amp Kearney, M. S. (2008). Trends in US wageinequality: Revising the revisionists. TheReview of economics and statistics,90(2),300-323.

Heathcote,J., Perri, F., &amp Violante, G. L. (2010). Unequal we stand: Anempirical analysis of economic inequality in the United States,1967–2006. Reviewof Economic dynamics,13(1),15-51.

Krebs,T., Krishna, P., &amp Maloney, W. (2005). Tradepolicy, income risk, and welfare(No. w11255). National Bureau of Economic Research. Income Inequality in the U.S. Retrieved June 25, 2016 from