Chapter 8 The Instruments of Trade Policy
Chapter 8 ▪ The Instruments of Trade Policy
Chapter organization Introduction Basic Tariff analysis Costs and benefits of a tariff a Other Instruments of Trade policy The Effects of Trade Policy: A Summary Summary Appendix I: Tariff Analysis in General Equilibrium Appendix Il: Tariffs and Import Quotas in the Presence of monopoly Copyright C 2003 Pearson Education, Inc Slide 8-2
Copyright © 2003 Pearson Education, Inc. Slide 8-2 ▪ Introduction ▪ Basic Tariff Analysis ▪ Costs and Benefits of a Tariff ▪ Other Instruments of Trade Policy ▪ The Effects of Trade Policy: A Summary ▪ Summary ▪ Appendix I: Tariff Analysis in General Equilibrium ▪ Appendix II: Tariffs and Import Quotas in the Presence of Monopoly Chapter Organization
Introduction This chapter is focused on the following questions What are the effects of various trade policy instruments? Who will benefit and who will lose from these trade policy instruments? What are the costs and benefits of protection? Will the benefits outweigh the costs? What should a nation's trade policy be? For example, should the United States use a tariff or an import quota to protect its automobile industry against competition from Japan and South Korea? Copyright C 2003 Pearson Education, Inc Slide 8-3
Copyright © 2003 Pearson Education, Inc. Slide 8-3 Introduction ▪ This chapter is focused on the following questions: • What are the effects of various trade policy instruments? – Who will benefit and who will lose from these trade policy instruments? • What are the costs and benefits of protection? – Will the benefits outweigh the costs? • What should a nation’s trade policy be? – For example, should the United States use a tariff or an import quota to protect its automobile industry against competition from Japan and South Korea?
Introduction Classification of Commercial Policy Instruments Commercial Policy Instruments Trade Contraction Trade Expansion Price Quantity Price Quantity Tariff Import quota Import subsidy Voluntary Export tax Voluntary Export subsidy Im port Export Expansion Restraint (VE) (VER) Copyright C 2003 Pearson Education, Inc Slide 8-4
Copyright © 2003 Pearson Education, Inc. Slide 8-4 Classification of Commercial Policy Instruments Introduction Commercial Policy Instruments Trade Contraction Trade Expansion Tariff Export tax Import quota Voluntary Export Restraint (VER) Import subsidy Export subsidy Voluntary Import Expansion (VIE) Price Quantity Price Quantity
Basic tariff analysis Tariffs can be classified as Specific tariffs Taxes that are levied as a fixed charge for each unit of coods imported Example: A specific tariff of 10 on each imported bicycle with an international price of$100 means that customs officials collect the fixed sum of S10 Ad valorem tariffs Taxes that are levied as a fraction of the value of the imported goods Example: A 20% ad valorem tariff on bicycles generates a $20 payment on each $100 imported bicycle Copyright C 2003 Pearson Education, Inc Slide 8-5
Copyright © 2003 Pearson Education, Inc. Slide 8-5 Basic Tariff Analysis ▪ Tariffs can be classified as: • Specific tariffs – Taxes that are levied as a fixed charge for each unit of goods imported – Example: A specific tariff of $10 on each imported bicycle with an international price of $100 means that customs officials collect the fixed sum of $10. • Ad valorem tariffs – Taxes that are levied as a fraction of the value of the imported goods – Example: A 20% ad valorem tariff on bicycles generates a $20 payment on each $100 imported bicycle