Trade and protectionism

Question 1

what is the deadweight welfare loss in a tariff diagram

Answer 1

• the two triangles either side of the govt revenue rectangle
• this is the area of DWL because it is the area of the decrease in consumer surplus which hasn’t gone to producers or the government

Question 2

why is the world supply completely elastic?

Answer 2

Because the domestic market is such a small component relative to the size of the overall world market for that particular industry, meaning that domestic buying and sellig does not have the ability to influence the world price.

(there are many buyers and sellers in the world market, mimicking the microeconomic concept of perfect competition)

Question 3

Describe the shift when a tariff is implemented:

Answer 3

• the tariff is universally applied to every unit of imports, therefore the shift from Sw to Sw +tariff will be a uniform rise.
• Pw to Pw+tariff

Question 4

what are some of the key recent examples of tariffs - what has been their effect

Answer 4

• June 29th 2022, UK trade secretary extended tariffs on steel products, which violated international law set by the WTO
• safeguard tariffs, according to the WTO, cannot be implemented if the only reason is a fear of a surge in imports in the future
• the policies were aimed at protecting its domestic steel industry, which supports 33,000 jobs, or 0.1% of employees

Trump tariffs
- placed tariffs on steel and aluminium imports from Canada and Europe
- while tariffs on Chinese exports by the US were 3% in 2018, he raised average tariffs to 19% by 2020, firstly in response to China theft of US companies’ IP, and then in retaliation to China’s increased tariffs (which they had imposed to retaliate in the first place)
- good example to show how tariffs can quickly lead to retaliaton, meaning that both countries become worse off
- The tariffs shuffled resources around: towards American producers of products shielded by the tariffs, away from the businesses and people having to pay for more expensive imports, as well as producers affected by foreign retaliation.
- Trump claimed that the $80bn in revenue raised from the tariffs was from foreign producers, but in reality economists found it was American importers paying for this revenue

Question 5

what are some of the key recent examples of quotas - what has been their effect

Answer 5

US and UK quotas on beef - e.g., the US has a quota on beef exported from Namibia - can only export maximum of 860 tonnes of beef, which is only 0.008% of the US’ beef production

Question 6

what are some of the key recent examples of subsidies - what has been their effect

Answer 6

In South Korea, the Korean govt subsidised Kia in the last 20th century in order to help it become more internationally competitive

Inflation reduction Act in the US, means that the country is subsidising electric vehicle companies - consequently, Arrival, a british maker of EV delivery vans, has moved to California