Effects of Tariffs on Stakeholders

Question 1

Introduction

Answer 1

Tariff - A tax that is placed on imports to protect domestic industries from foreign
competition and to raise revenue for the government

Thesis - When tariffs are employed in the economy as a form of trade barriers the stakeholders who are effected are domestic producers, the government, domestic consumers and foreign producers.

Question 2

Diagram

Answer 2

Figure 1: The market for Solar Pannels in the United States

Question 3

Real Word Example

Answer 3

In 2018 the United States implemented tariffs on imported solar panels in order to protect domestic solar panel manufacturers. The tariffs were intended to support domestic production and job creation. They were initially set at 30% but decline gradually over four years. The tariffs were beneficial in that they increased investments and capacity expansion but drawbacks were that they increased cost for solar project developers and raisins concerns about long term renewable energy growth.

Question 4

Explain Diagram

Answer 4

Figure 1 represents the effect of a tariff on the market for solar panels. (Pw) represents the world price for solar panels. When the price of solar panels is at the world price dometic production can be seen at (Q1) and domestic consumption can be seen at (Q2). When the government imposes a tariff domestic price will raise to P’. The amount of the tariff can be viewed as (t) to so P’ is equal to (Pw + t). Given the new price P’ now present in the domestic market domestic production will rise from (Q1) to (Q3) while domestic consumption will fall from (Q2) to (Q4).

Domestic consumer expenditure will increase and is represented on the diagram as P’ x Q4. Domestic producer revenue will increase and is represented on the diagram as P’ x Q3. Forign producer revenue will decrease and is represente on the diagram as P x Q3-Q4. Tariff revenues collected by the government is represented on the diagram as t x Q3-Q4. The tariff will led to a welfare loss equal to area (2) and area (4).

Question 5

Stakeholders that gain

Answer 5

Domestic Producers:
One stakeholder that gains when a tariff is employed in a domestic market is domestic producers. Domestic producers are gaiaing because there is an increase in domestic production and an increase in revenue. Domestic producer surplus increase.

Government:
Another stakeholder that gains when a tariff is employed in a domestic market is the government of that country the government gains because they earn the revenue generated from that tariff. However the government also suffers because tariffs are politically unpoupalr and ivite retaliation from trading partners.

Question 6

Stakeholders the loose

Answer 6

Domestic Consumers:
A stakeholder that is worse off when a tariff is employed in a domestic market is domestic consumers. Domestic consumers have to pay a higher price for a good/service and therefore buy a lower quantity. Domestic consumer surplus decreases.

Foreign Producers:
Foreign Producers are are worse off when a tariff is employed in a domestic market. Foreign Producers will now export a smaller quantity of the good/service because of the tariff therefor there is a loss of foreign producer revenue.

The Global Economy is also worse off when a tariff is employed in a domestic market. This is because tariffs lead to welfare loss and inefficient global allocation of resources.