introduction tariffs, quota's, and other trade restrictions tariffs and partial equilibrium...

Introduction

Tariffs, quota's, and other trade restrictions

Tariffs and partial equilibrium

Tariffs and general equilibrium

Chapter 8 tool: offer curves

General equilibrium with offer curves

The "optimal" tariff?

Optimal tariffs and retaliation

Tariffs in the USA

Conclusions

CHAPTER 8; TRADE POLICYInternational Trade & the World Economy; Charles van Marrewijk

Explanations for trade

Classical 2. Opportunity costs 3. Comparative advantage

Neo-classical 4. Production structure 5. Factor prices 6. Production volume 7. Factor abundance

1. The world economy

New trade 9. Imperfect competition 10. Intra-industry trade

Policy

8. Trade policy

11. Strategic trade policy

12. Int. trade organizations 13. Economic integration

17. Applied trade policy modeling

Economicgeography

New interactions 14. Geographical economics 15. Multinationals 16. New goods, growth, and development

Industrialorganization

Internationalbusiness

Growth theory

Part

IP

art

IIPa

rt I

IIPa

rt I

V

18. Concluding remarks

Introduction








Tariffs in the USA

Conclusions


IntroductionInternational Trade & the World Economy; Charles van Marrewijk

Objectives / key terms

Tariff / effective tariff Quota

Voluntary export restraints (VER) Harberger triangle

Double distortion Offer curve

Trade indifference curves 'Optimal' tariff and retaliation

James Meade (1907-1995)

Introduction








Tariffs in the USA

Conclusions


Tariffs, quota's, and other trade restrictions International Trade & the World Economy; Charles van Marrewijk

Remaining tariff as % of 1930 tariff

0

10

20

30

40

50

60

1945 1955 1965 1975 1985 1995

There are many types of trade restrictions, e.g. specific tariffs, ad valorem tariffs, quota, subsidies, prohibitions, minimum content, etc.

Multilateral rounds by GATT/WTO have reduced the tariff levels considerably

Introduction








Tariffs in the USA

Conclusions


Tariffs and partial equilibrium; small country International Trade & the World Economy; Charles van Marrewijk

quantity

demand

supply

price

q0 q1 q4q3q2

p0

p0(1+t)

p2

imports without tariff

imports with tariff

tariff

increase producer surplus

net loss; Harberger triangles

decrease consumer surplus

government revenue

Tariffs and partial equilibrium; large country International Trade & the World Economy; Charles van Marrewijk

quantity

demand

supply

price

q0 q1 q4q3q2

p0

p1(1+t)

p2

imports without tariff

imports with tariff

tariff

p1

increase producer surplus

= net loss; possible gain

decrease consumer surplus

government revenue

-/-

Introduction








Tariffs in the USA

Conclusions


International Trade & the World Economy; Charles van Marrewijk

0

2

4

6

0 1 2 3 4 5

Manufactures

Foo

dexport Food with tariff

export Food without tariff

import Manufactures with tariff

import Manufactures without tariff


Tariff raises production of protected good, lowers production of other good

trade reduced



ppf

U1U2

U3

Tariffs double distortion: for production and consumption

Introduction








Tariffs in the USA

Conclusions


Chapter 8 tool: offer curves International Trade & the World Economy; Charles van Marrewijk

-2

0

2

4

6

-4 -2 0 2 4

export Manufactures

impo

rt F

ood

A

B

Offer curve depicts all combinations of export supply in exchange for import demand

Introduction








Tariffs in the USA

Conclusions


General equilibrium with offer curves International Trade & the World Economy; Charles van Marrewijk

0

1

2

3

0 1 2 3

export ManufacturesA ; import ManufacturesB

impo

rt F

ood A

; e

xpor

t F

ood B

offerB

offerA

trade equilibrium

Intersection offer curves gives trade equilibrium

Introduction








Tariffs in the USA

Conclusions



0

1

2

3

0 1 2 3


impo

rt F

ood A

; e

xpor

t F

ood B

offerA no tariff

offerB

offerA tariff

C

D

The ‘optimal’ tariff?

Imposing tariff rotates offer curve, influences equilibrium


0

1

2

3

0 1 2 3


impo

rt F

ood A

; e

xpor

t F

ood B

offerA no tariff

offerBofferA tariff

trade indifference curves

C

D

The ‘optimal’ tariff?

Tangency of trade indifference curve with foreign offer curve determines ‘optimal’ tariff

Introduction








Tariffs in the USA

Conclusions



0

1

2

3

0 1 2 3


impo

rt F

ood A

; e

xpor

t F

ood B

offerA no tariff

offerB no tariff

offerA tariff

offerB tariff

C

D

E

F


Tariff war leads to bad outcome for all

Introduction








Tariffs in the USA

Conclusions


Tariffs in the USA International Trade & the World Economy; Charles van Marrewijk

0

10

20

30

40

50

60

1820 1870 1920 1970

tarif

f re

venu

e /

impo

rt v

alue

tarif f of Abominations Morrill and

War tarif fs Haw ley-Smoot

Fordney-McCumby

Kennedy

Introduction








Tariffs in the USA

Conclusions


ConclusionsInternational Trade & the World Economy; Charles van Marrewijk

• There are many different types of trade restrictions

• Imposing tariffs leads to winners (some producers and the government) and losers (other producers, consumers, and abroad)

• Net welfare is negative if the country is ‘small’ (efficiency loss, Harberger triangles)

• Net welfare effect is potentially positive if the country is ‘large’ (= can influence the world relative price level; ‘optimal’ tariff)

• Net welfare effect also negative for large country with retaliation

• quota equivalent to tariff, except for distribution tariff revenue

• human capital intensive manufactures exports mainly in OECD countries, Central Europe, and Latin America (next slide)

ConclusionsInternational Trade & the World Economy; Charles van Marrewijk

Human capital intensive man.; share of exports (%), 1998; Source: ITC

human cap. int. man.share of exports (%)

16.9 to 43.6 (31)7.8 to 16.9 (30)2.6 to 7.8 (26)0.5 to 2.6 (30)0 to 0.5 (34)

introduction tariffs, quota's, and other trade restrictions tariffs and partial equilibrium...

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