Question: Wealth and International Trade

Importing goods produced by low-wage workers abroad decreases the demand for low-skilled U.S. labor that makes competing goods. Supply and demand analysis shows that the equilibrium wage rate of low-skilled workers making these competing goods and services will fall and experience bears this out. However, dire warnings that sweatshop labor conditions will be imported along with the foreign goods are unfounded. Suppose an employer in the United States faces competition from a foreign producer who pays the equivalent of $1 a day. Explain why, even if there were no minimum wage laws, this employer could not succeed by lowering the wage rates of his or her U.S. workers to $1 a day.