tradepolicy

Information about tradepolicy

Published on April 22, 2008

Author: The_Rock

Source: authorstream.com

Content

Trade Policy & Intervention:  Trade Policy & Intervention ECON 758 Advanced International Economics Dr. Jeffery Heinrich Module 5B: Agenda:  Module 5B: Agenda Revisit the wins and losses from trade – consider the ideas of consumer and producer surplus. Describe the various tools of trade protection and promotion. Analyze the economic and welfare impact of trade policies. Contrast the impacts of different tools of trade protection. Mercantilism, Revisited:  Mercantilism, Revisited Mercantilism Past (Pre-19th C.) National welfare thought to depend on gold holdings. Imports bad (gold out); Exports good (gold in) Mercantilism Present: contemporary “gold” = jobs! Trade viewed as zero-sum game  exporter’s gain is importer’s loss. Adam Smith & Wealth of Nations (1776) Imports cheaper than domestic substitutes  imports increase consumption Exports generate income to pay for imports Trade is win-win situation! Hume: More gold = higher prices, not more wealth. Gains from Trade, Revisited: Consumer and Producer Surplus:  Gains from Trade, Revisited: Consumer and Producer Surplus Consumer Surplus (CS) “Demand” = Marginal Benefit (MB) MB – price = net benefit  CS! Total CS = area between Demand and Price (area a) Price Changes let price fall p1 to p2 CS : consume more units (Q2 > Q1) at a lower price. Total CS  = area b Price changes and CS? Imports  effect on CS? Exports  effect on CS? Producer Surplus:  Producer Surplus Selling Price = gross benefit Supply = marginal cost unit Producer Surplus (PS) = price less cost Total PS = area below price & above supply (at p1, PS = area c) Price Changes price falls  sell less at a lower price  total PS falls! price rises ~ PS? Imports, Exports and PS? (Opposite of CS!) Winners and Losers from Trade:  Winners and Losers from Trade PA = autarky (pre-trade) price Imports: PM = import price Quantity of imports = Q2 – Q1 PS  by area c; CS  by areas c + d Net national gain area d, but losses to producers! Exports: PX = export price Quantity of exports = Q2 – Q1 Changes in PS, CS? Net gains? Who loses? Winners favor free trade; Losers favor trade protection. Trade Equilibrium:  Trade Equilibrium Domestic Qty Demanded > Domestic Qty Supplied; difference = Import Demand (MD) Domestic Qty Supplied > Domestic Qty Demanded; difference = Export Supply (XS) Trade Equilibrium: Country 1 MD = Country 2 XS Country 2 Country 1 Tariffs:  Tariffs Tariff = tax on imports ad valorem: percent of value (e.g., 4% tariff) specific: fixed tariff (e.g., 40¢ per unit) Economic Impact: Tariff-inclusive domestic price   Domestic qty supplied  & Domestic qty demanded   Quantity imports falls to QT Exporter exports fewer units  export price falls from PW to PT*. Distributional/Welfare Impact: PS  by a; government gains revenue c+e; CS  by a+b+c+d welfare transfer from consumers to producers and government Net Welfare change + e – b – d e is terms of trade gain for importer; b & d are dead-weight loss Effective Rate of Protection (ERP):  Effective Rate of Protection (ERP) Multiple stages of production, only some done domestically  tariff on imported inputs can hurt domestic producers! ERP = % change in domestic value added from a given tariff structure, compared to free-trade prices. Example: 1 output using 1 imported input, facing world prices for both PWout = $10, PWin = $5. Under free trade, dom. value added = $5 20% tariff on output: Pout* = $12  dom. value added = $7  ERP? 20% tariff on input: Pin* = $6  dom. value added = $4  ERP? Gives rise to cascading tariff structures  tariffs are higher on later stages of production. ERPs often higher than nominal tariffs! Tariffs, concl.:  Tariffs, concl. Tariffs increase domestic price of both foreign and domestic goods! Terms-of-trade gain: force exporter to lower tariff-exclusive price of import. Small country faces perfectly elastic export supply curve  no ability to influence terms of trade. Foreign retaliation: force you to lower your export price, remove terms of trade gain, even lower volume of trade. Deadweight Loss: inefficiently high domestic production, inefficiently small consumption. Overall loss to country imposing tariff likely (b+d > e) Nominal tariff rates may misstate effective rate of protection. Quotas:  Quotas Quota is a set maximum on imports in volume or value terms. Similarities to tariff that results in same level of imports: increase domestic sale price and production; reduce consumption. transfer from consumer to producer. Quotas do not generate any tariff revenue! Instead, areas c + e are quota rent  domestic sale price in excess of cost of imports. Quota rent is pure profit. Quotas likely welfare inferior to tariff due to lost quota rent. wasted in costly lobbying for quota licenses. given to foreign governments. Quotas – additional considerations:  Quotas – additional considerations Suppose domestic demand increases: tariff: imports increase, no change in price. quota: domestic price increases, no change in imports Quotas reduce price competition. foreign firms cannot increase sales by lowering price, so don’t compete on basis of price  domestic firms end up with more market power. reduced economies of scale Voluntary Export Restraints (VERs) often at request of importing country rents definitely go to foreigners more politically expedient than formal barriers to trade Quotas and/or VERs common in textiles, iron/steel, autos, agriculture Export Subsidies:  Export Subsidies per-unit payment to exporter Economic impact increase exports increase domestic price (PW to PS); lower foreign sale price (PW to PS*) Distributional Impact PS ; CS ; government expenditure! gain to producer > loss to consumer, but by less than cost of subsidy! Overall Impact deadweight loss = b + d terms of trade deterioration/loss = e + f + g EU CAP – price supports and subsidized exports lower world prices, increase European prices Other Barriers to Trade:  Other Barriers to Trade Anti-Dumping and Countervailing Duties in response to foreign firms “unfairly” selling goods in the U.S. at “less than fair value.” Countervailing duty meant to offset foreign subsidies. Dumping: 1) selling in U.S. at price lower than in home market, or 2) at price below cost. system biased in favor of finding of unfair pricing Restrictions on Services aircraft landing rights; sea transport restrictions; insurance Domestic Content Provisions particularly important in Preferential Trade Areas, e.g., NAFTA Other Barriers to Trade, cont.:  Other Barriers to Trade, cont. Government Procurement Policies Administrative Classification Health and Safety Standards European Border Taxes and U.S. Offshore Sales Corporations Social Policies Performance Requirements (typically applying to foreign direct investment)

Related presentations


Other presentations created by The_Rock

airlines
30. 03. 2008
0 views

airlines

AVCA CHRIS MWEBESA
13. 04. 2008
0 views

AVCA CHRIS MWEBESA

wolf032806
10. 04. 2008
0 views

wolf032806

UEI SI2006 CitiesIntro
07. 04. 2008
0 views

UEI SI2006 CitiesIntro

Wisenews
28. 03. 2008
0 views

Wisenews

Mogi Tsinghua
27. 03. 2008
0 views

Mogi Tsinghua

2007070302122666487
26. 03. 2008
0 views

2007070302122666487

networking 101
19. 06. 2007
0 views

networking 101

Bowen Family Systems Theory
19. 02. 2008
0 views

Bowen Family Systems Theory

cipher machines
01. 01. 2008
0 views

cipher machines

huwang
29. 09. 2007
0 views

huwang

amart3
02. 10. 2007
0 views

amart3

Finland Nokia
07. 09. 2007
0 views

Finland Nokia

SINUS Milieu stud
12. 10. 2007
0 views

SINUS Milieu stud

AAS SD05 present
29. 11. 2007
0 views

AAS SD05 present

Germany Voting
27. 08. 2007
0 views

Germany Voting

disaster 2001
27. 08. 2007
0 views

disaster 2001

Bergstrom
27. 08. 2007
0 views

Bergstrom

workshop24 2
27. 08. 2007
0 views

workshop24 2

History of electric charge
20. 11. 2007
0 views

History of electric charge

Debra Lieberman
22. 11. 2007
0 views

Debra Lieberman

Reading Genres
27. 08. 2007
0 views

Reading Genres

Plant Establishment
02. 01. 2008
0 views

Plant Establishment

SPACE
03. 01. 2008
0 views

SPACE

IntroductionTo OWL
04. 01. 2008
0 views

IntroductionTo OWL

HBCU Deans Seminar 2005
01. 10. 2007
0 views

HBCU Deans Seminar 2005

genX
27. 09. 2007
0 views

genX

499HodoCuba04
11. 12. 2007
0 views

499HodoCuba04

ext ref uncertainty
27. 08. 2007
0 views

ext ref uncertainty

Intro HTML
09. 10. 2007
0 views

Intro HTML

Ransom Pollen Drift in Wheat
04. 10. 2007
0 views

Ransom Pollen Drift in Wheat

overview norway with notes final
07. 09. 2007
0 views

overview norway with notes final

2004 CFS Power Point for LEPC
26. 02. 2008
0 views

2004 CFS Power Point for LEPC

fps ml talk
28. 02. 2008
0 views

fps ml talk

11979
29. 02. 2008
0 views

11979

presentation cons 2007 e
04. 03. 2008
0 views

presentation cons 2007 e

knox trail proposal
10. 03. 2008
0 views

knox trail proposal

wwired scare
03. 01. 2008
0 views

wwired scare

Banff
13. 03. 2008
0 views

Banff

Technological Prerequisites
18. 03. 2008
0 views

Technological Prerequisites

SKH TOURCAN POWERPOINT
21. 03. 2008
0 views

SKH TOURCAN POWERPOINT

Un Arco Iris para ti 2066
21. 06. 2007
0 views

Un Arco Iris para ti 2066

Diarréia Crônica em AIDS
28. 12. 2007
0 views

Diarréia Crônica em AIDS

liebeversicherung
19. 06. 2007
0 views

liebeversicherung

Lab49 Algo v6
19. 06. 2007
0 views

Lab49 Algo v6

SWR0311
19. 06. 2007
0 views

SWR0311

Tibetan Dali Lama questions
19. 06. 2007
0 views

Tibetan Dali Lama questions

15828233
03. 10. 2007
0 views

15828233

strand
19. 06. 2007
0 views

strand

Yo quisiera ser 1953
21. 06. 2007
0 views

Yo quisiera ser 1953

Sin vicios para matrimonio 2008
21. 06. 2007
0 views

Sin vicios para matrimonio 2008

Lesson7 OverheadT ransparencies
19. 06. 2007
0 views

Lesson7 OverheadT ransparencies

Profesiones 1950
21. 06. 2007
0 views

Profesiones 1950

slides oct04
19. 06. 2007
0 views

slides oct04

Suarez pres
28. 09. 2007
0 views

Suarez pres

140103
10. 10. 2007
0 views

140103

Lec1 intro
21. 11. 2007
0 views

Lec1 intro

FIcase Oslo workshop
07. 09. 2007
0 views

FIcase Oslo workshop

two years
19. 06. 2007
0 views

two years

MEDITARE
19. 06. 2007
0 views

MEDITARE

Se necesita amor 1955
21. 06. 2007
0 views

Se necesita amor 1955

OAG Sinha
19. 06. 2007
0 views

OAG Sinha

spit
19. 06. 2007
0 views

spit