Trade Policy Instruments: Tariffs, Quotas, and Subsidies
1. Why increase the value added in a domestic industry if it rises the nominal tariff rate on imports of the final product of the industry and do not change the nominal tariff rates of inputs used by the industry?
Often, a nation imports a raw material free of import duties or impose a lower tariff rate on imports of inputs that the importation of finished goods produced with imported inputs. The nation does this in order to promote domestic employment and processing. For example, a nation can import wool free of import duties, but impose a tariff on imports of cloth in order to stimulate the production of cloth and domestic employment.
When this is the case, the effective rate of protection (calculated domestic value added) is higher than the nominal tariff rate (calculated on the final value of the goods).
2. Under what circumstances the application of a quota on imports makes the relationship between the domestic price and world price of good is different to the implementation of a tariff?
Under circumstances of imperfect competition, with a given import quota, an increase in demand will become a higher domestic price and increased domestic production with an import tariff equivalent. Moreover, with an import tariff is given, an increase in demand will not change the price and domestic production, but will result in increased consumption and more imports with an import quota equivalent.
3. Why are more likely to implementing a SEE generate income transfers to the supplier country if placed a quota on imports?
From a strictly economic point of view function exactly like an import quota where licenses are assigned to foreign governments. The impact on domestic price and the quantity imported is the same. The cost to the importing country is reflected more in a transfer of income to the exporting country in a loss of efficiency of its economy.
4. Explain the various effects in terms of trade when an importing country applies a quota on imports and when an exporting country applies a VIEW of the same volume.
The effects of a VER are the same as a quota on imports in sales that licenses are allocated to a foreign government. The impact on domestic price and the quantity imported is the same.
Keep in mind that a VER restrictions are normally imposed by the importing country requirements and accepted by the exporting country to avoid further trade restrictions.
5. Who benefits and loses from the introduction of a tariff? What is the net effects on society of the country that it used?
Benefit domestic producers, because they are not forced to take as a reference for the domestic market competitive world price of the product but that price plus the tariff. Consequently they can sell on the domestic market at a higher price and this price can produce more profitable. Your benefits increase. Also favored the State, as the tariff revenue increase state coffers.
Consumers will be disadvantagedretracted because the higher price to shop (some will buy less and buy). Thus the situation worse with more expensive consumer good. It produces inefficiency in consumption.
The introduction of a fee, usually has an overall negative net effect on the economy than implanted. We can therefore say that the effect is ambiguous. We must also take into account the size of the country, affecting more than a small country than a large one.
Although this has been one of the most trade policy instruments used.
6. Differences between the effects of the introduction of a tariff quota on the import or export subsidy.
ArancelCuota to importaciónSubvención the X AumentaAumentaAumenta Producer Surplus Consumer Surplus AumentanDisminuye State Revenue DisminuyeDisminuyeDisminuye (increases public spending) No change (income to holders of licenses) Ambiguous overall social welfare (decreases for small country) DisminuyeAmbiguo (decreases for country small)
7. In what way is the optimal tariff is optimal for the economy than it used?
In conceptual terms it is considered an optimal tariff to one that generates the largest positive difference between the proceeds from the displacement of the RRI (best prices of the goods) and the losses caused by the decrease of the quantity imported. There is evidence that low tariff rates with the welfare of a large country is higher than with free trade.
As the tariff increases the losses grow faster than benefits arising from the displacement of the RRI, so the optimal tariff should be reduced.
8. If you were a producer that competes with imported goods in a booming market. What marketing tool would choose: a tariff, a quota or a subsidy? Why?
Take an import quota because it is best insulation on the international market than the tariff.
In the event that there is a fee, if there is a technological improvement in the exporting country will reduce its costs and therefore can sell their products in foreign markets at a lower price, whereas if there is a fee, although products more competitive, not exceed the quota.
9. What is the difference between a tax and a subsidy to exports? What tools would choose domestic consumers? Why?
These measures are different, as a tax or tariff is to tax imports less competitive in the domestic market, while an export subsidy, acting, is the country of origin, giving support to their exporters to can compete with best prices in international markets.
Consumers prefer a subsidy on exports because a tariff increases the prices will retreat as consumption. It produces an inefficiency in consumption. Meanwhile, an export subsidy has the opposite effect to the tariff price. It is usually going to keep the domestic price.
10. Why is likely that a large country like the U.S. have greater incentives to implement trade restrictions that a small country?
If the tariff is implemented by a large country in the global market affected product demand reduction can depress the world price. In this case lowers the price of imported goods and improves the IRR of the country that implements the tariff so that inefficiencies in the production and consumption can be offset. For a small country, this effect is negligible.
11. Why are states that if the market works, an infant industry policy does not require any action by which private investors will be responsible for its expansion without government help?
In principle, there should be established by government aid for emerging industries because there are a number of difficult questions:
Moreover, there is no guarantee that the administration will do better than markets, that is, if there are private investors, the infant industry can go ahead despite competition.
There is one situation where the argument is deemed applicable to the infant industry protection:
When the initial competitive disadvantage solely derived from its higher unit costs as a result of lower human capital caused by the inexperience of its workers. In this case the disadvantage is only temporary and will disappear as learning progress of their employees and the average unit costs are equalized to that of foreign industry, which disappear when the protection
The private is always better than public because:
“It involves costs for the State
“Do not provoke retaliation from other countries.
“With private investment the industry will not accommodate and seeks constant improvement.
As the market does the private investor has information about the industry and knows if the industry is going to be productive or not in the future.
12. Why not make sense to apply the argument of the displacement of the terms of trade to implement a tariff in a small country?
Because this argument is only valid in principle for large countries, since in these, the effects of the tariff causes an improvement resulting from RRI depressing the price of imported goods to reduce imports in the country tariff applies.
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13. Why the optimal tariff for a large country is not infinite if the terms of trade improve with increasing the tariff? Reasonable to assume that foreign countries do not take reprisals.
There is evidence that low tariff rates with the welfare of a large country is higher than with free trade. As the tariff increases the losses arising from inefficiencies in the production and consumption grow faster than benefits arising from the displacement of the RRI, so the optimal tariff should be reduced.
14. How can mimic the application of provisions for government procurement to implementation of a tariff?
Purchases by the State or public companies are often directed towards domestically produced goods even when they are more expensive than imports. This preference is similar to an ad valorem tariff and the domestic producer receives protection equivalent to the percentage by which the domestic price of the asset exceeds the world price of like goods. While there have been efforts to reduce them, most governments still have them.
15. What instrument resembles the application of domestic content requirements: a tariff or quota on importation? Why?
It looks like both, depending on your point of view:
From the standpoint of domestic producers of inputs, a local content requirement provides protection identical to that of the quota.
From the point of view of companies importing the domestic content requirement is not a strict limit on imports because of increasing domestic demand may matter more, so more like the tariff.
16. Why do you think have proliferated and proliferated as protectionist instruments in foreign trade policy?
The defense of protectionist positions in trade relations is based on two reasons: traditional reasons and recent reasons.
Traditional reasons:
1. Defense of the nascent industry.
2. Shifting the terms of trade
3. Defense of national employment.
4. Answers dumping and unfair trade.
5. National defense or strategic sectors in decline.
6. Addressing shortage of foreign exchange.
7. Improved trade balance
RECENT REASONS:
1. Extracting benefits to foreign monopolies.
2. Obtaining economies of scale in a duopoly.
3. Export promotion policy through R & D.
4. Power differences in product market.
5. Generation of diversification benefits.
6. Displacement of income.
7. Domestic market failure (Theory of second best)
17. Suppose that a country declares that it will enter into free trade by reducing their tariffs on intermediate inputs and maintaining tariffs on final output. What would you have?
What he’s doing more to protect the national company, therefore is increasing its effective protection,
? Tariff on products / output end? Greater protection
? Tariff on intermediate inputs? Less protection
(completadla that is, to quote Leti pinch Like 1)
18. The conversion of all import quotas and other nontariff barriers in import tariffs will improve the welfare of the world. What you argue in defense of this claim?
Such a conversion would summarize and simplify the real barriers on imports in one country, facilitating and enhancing trade flows. Thus, the exporter would agree to market with full knowledge of the degree of protection for themselves and there would be no quotas limiting the amount of imported products, it is easier to place their products in the country. The global welfare would increase because the country has a comparative advantage in producing goods, may use their lower costs to offset the advantage of the tariff for domestic producers, and consumers will benefit from these imported products more efficient.
This simple addition would make the increase of global free trade through the progressive reduction of tariffs, regardless of any national barriers that cleverly camouflaged as a criterion countries technical, health, …
By Alberto OLE TU Pollice (case of the boy added)
19. Compared to what benefits a tariff provides a subsidy to protect an industry vital to the defense or the national economy?
The grant will help improve the world market share of domestic firms export. In imperfectly competitive markets where profits are derived from market power, have greater ownership of a share implies higher fraction of those profits. If their effects adversely affect the country’s overall welfare, it would be optimal to apply a subsidy high enough to obtain an advantage over foreign competitors in terms of global market share for the reasonably low cost in terms of domestic welfare not exceed the benefits of that advantage.
This is far from clear …. We do not know if it refers to an export subsidy or protection of the nascent economy ..
20. Suppose the production technology allows a self-proclaimed budding industry to obtain economies of scale and foreign producers also have the same technology. Taking into account all of the world economy, is there a valid argument for protectionism in this situation?
Page 14, Defense of the infant industry
When an industry made up of two companies, one located in the base country and another abroad, the application of a tariff in the first to reduce imports and achieve greater economies of scale, which facilitates the growth of exports Company protected. The usefulness of the argument vanishes if the foreign country retaliates and applies higher tariff protection. Gains would not have occurred to none and reduce international trade and global welfare.
21. Why is it possible that a tariff applied to reduce unemployment in a country creates the reverse effect of increasing unemployment?
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Employment growth through import substitution policy through tariff
is a policy of beggar thy neighbor as exporting countries lose jobs. First it may retaliate by reducing the tariffs implementing employment in export industries of the country with a higher tariff or implemented to defend their jobs.
Even without retaliation is possible that exports of the country that applies the tariff fall. The decline in exports to the country affected by the implementation of the national tariff revenue decreases and causes a drop in consumption of imported goods the country that introduced the tariff. Consequently, their export industry employment decline.