6313 trade barriers

8/9/2019 6313 Trade Barriers

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Welfare effects of trade barriers

Outline

1. Protectionist measures

2. Economic effect of an embargo

3. Economic effect of a tariff

4. Economic effect of a quota

5. Arguments for protectionism


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Protectionism

The term protectionism refers to any

measure that has the effect of reducing

the quantity of imported goods or

services.

Commercial policy: Government policy thatinfluences international trade flows.


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Protectionist measuresTrade embargos: Prohibitions on the importation(or exportation) of goods and services. Examples:1973 Oil embargo, trade embargo with Iraq,

embargo on imported sugar from Cuba.

Tariffs: Taxes imposed on imported goods.

Quotas: Limits on the quantity or value of goods orservices that can be imported or exported.Examples: The textile quota, the sugar quota,export quota on raw timber.

Subsidies: payments by government to exporters.These stimulate trade by allowing the exporter to

charge a lower price.


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Protectionism, part 2

Government procurement: Most nations require theirgovernments to buy from domestic producers. Example: the

1933 Buy American Act applicable to federal agencies.Non-tariff trade barriers: Other policies that have the effect ofreducing the flow of imports or exports. Example: Health andsafety standards, import licensing, product design standards,bureaucratic red tape.

The Japanese trade ministry

(MITI) decided that snow skis

made in the U.S. were not safe

enough for Japanese skienthusiasts

Other examples: European ban on hormone

treated beef and genetically-modified soybeans


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Effect of tariffs and quotas on

imports, domestic production, and

prices

PW is the world pricethat is, the price of the good that

world be established in a global market without trade

barriers.Pd is the domestic pricethat is, the price in the domestic

market if imports were equal to zero.

Qd is the domestic output of a good if imports are zero.

T is a tariff (measured in dollars, yen, lira, pesetas, etc.) per

unit, ton, pound, etc.

Pq is the domestic price under the imposition of a quota.


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Figure 8.8a: Effect of an embargo on Japanese watches

(a)

12.50

$15.00

Price

Quantity of Digital Watches252015

E

U.S. imports

D

U.S. supply

U.S. demand

A

B C

World price is $12.50

Embargo pushes pricepaid by domestic buyers

to $15.00

Loss of CS = BDEA

CDE is the deadweight loss.


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effect of a tariff on oranges

0

Price ($)

Quantity (tons)

D

S

PW

PW + T

Pd

Free trade imports

Imports with

tariff

q1 q5q4qdq2

Domestic

production

increases from q1to q2.

The domestic

price of oranges

increases.


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effect of a Quota on oranges

0

Price ($)

Quantity (tons)

D

S

PW

Pq

PdImport quota

= 100 tons

100 400300250200

Domestic

production

increases from

100 to 200 tons..

The domestic

price of oranges

increases.

Free trade imports

= 300 tons

S + Quota


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Arguments for protectionism

Save domestic jobs

Create a level playing field.

Government revenue creation.

National security

Infant industries

President Clintons

trade representative,

Carlene Barshevsky,use to say The U.S.

wants fair trade.


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Industry

Cost to Consumers

Per Job Saved

Autos $105,000

Color TVs 420,000

Motorcycles 150,000

Athletic Footwear 30,000

Apparel 37,000

Specialty Steel 1,000,000

Glassware 200,000

Sugar 60,000

Ball Bearings 90,000

Costs of protecting U.S. jobs from foreign

competition

Source: Coughlin, et al. (1988) andHufbauer, et al. 1986.


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Country

Tariffs as a % of

Government Revenue

U.K. 0.1%

Japan 1.2U.S. 1.5

Costa Rica 16.1

Ghana 31.2

Dominican

Republic44.2

Lesotho 55.1

Tariffs as a percentage of total government revenue

Source: World Bank

6313 trade barriers

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