tariffs © 2011 cengage learning. all rights reserved. may not be copied, scanned, or duplicated, in...

Tariffs

© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐ 1

PowerPoint slides prepared by:Andreea ChiritescuEastern Illinois University


Tariff revenues as a percentage of government revenues, 2007: selected countries

TABLE 4.1

Developing Countries Percentage Industrial Countries Percentage

The BahamasGuineaEthiopiaGhanaSierra LeoneMadagascarDominican RepublicJordan

51.247.933.528.527.626.920.911.3

New ZealandAustraliaJapanCanadaSwitzerlandUnited StatesUnited KingdomIceland

2.62.51.21.21.21.11.01.0


Selected U.S. tariffsTABLE 4.2


Examples of tariffs, selected countries (in %)TABLE 4.3


The effective rate of protectionTABLE 4.4


China’s nominal and effective tariff rates in forestry products, 2001

TABLE 4.5

Tariffs often rise significantly with the level of processing (tariff escalation) in many industrial countries. This is especially true for agricultural products. Tariff escalation in industrial countries has the potential of reducing demand for processed imports from developing countries, hampering diversification into higher-value added exports.© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐ 7

Tariff escalation on industrial countries’ imports from developing countries

FIGURE 4.1

Consumer surplus is the difference between the maximum amount buyers are willing to pay for a given quantity of a good and the amount actually paid. Graphically, consumer surplus is represented by the area under the demand curve and above the good’s market price. Producer surplus is the revenue producers receive over and above the minimum necessary for production. Graphically, producer surplus is the area above the supply curve and below the good’s market price.


Consumer surplus and producer surplusFIGURE 4.2

For a small nation, a tariff placed on an imported product is shifted totally to the domestic consumer via a higher product price. Consumer surplus falls as a result of the price increase. The small nation’s welfare decreases by an amount equal to the protective effect and consumption effect, the so-called deadweight losses due to a tariff.


Tariff trade and welfare effects: small nation modelFIGURE 4.3


Creeping protectionism during global economic downturn of 2008–2009: number of protectionist measures initiated*

TABLE 4.6


Effects of increases in U.S. tariffs on the world price of imported goods

TABLE 4.7

For a large nation, a tariff on an imported product may be partially shifted to the domestic consumer via a higher product price and partially absorbed by the foreign exporter via a lower export price. The extent by which a tariff is absorbed by the foreign exporter constitutes a welfare gain for the home country. This gain offsets some (all) of the deadweight welfare losses due to the tariff’s consumption and protective effects.


Tariff trade and welfare effects: large nation modelFIGURE 4.4


Economic welfare gains from liberalization of significant import restraints*, 2005 (millions of dollars)

TABLE 4.8

Annual change in Economic Welfare Import-Competing Industry

Textiles and apparelSugarDairyFootwearEthyl alcoholBeefTunaGlass productsTobacco

$1,885 millions81157324912048242019

*Import tariffs, tariff-rate quotas, and import quotas

A tariff placed on imported steel increases the costs of a steel-using manufacturer. This increase leads to a higher price charged by the manufacturer and a loss of international competitiveness.


How an import tariff burdens domestic exportersFIGURE 4.5


President Bush’s steel trade remedy program of2002–2003: selected products

TABLE 4.9


U.S. tariffs are high on cheap goods, low on luxuriesTABLE 4.10


Hourly compensation costs in U.S. dollars for production workers in manufacturing, 2007

TABLE 4.11


Productivity, wages, and unit labor costs, relative to the U.S.: total manufacturing, 2002 (U.S.= 1.0)

TABLE 4.12

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