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1、Chapter 8,The Instruments of Trade Policy,1,Introduction Basic Tariff Analysis Costs and Benefits of a Tariff Other Instruments of Trade Policy The Effects of Trade Policy: A Summary Summary,Chapter Organization,2,Appendix I: Tariff Analysis in General Equilibrium Appendix II: Tariffs and Import Quo
2、tas in the Presence of Monopoly,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 ? What are the costs and benefits of protection? Will the benefits outweigh the costs? What should a natio
3、ns trade policy be?,4,Classification of Commercial Policy Instruments,Commercial Policy Instruments,Tariff Export tax,Import quota Voluntary Export Restraint (VER),Import subsidy Export subsidy,Voluntary Import Expansion (VIE),5,Basic Tariff Analysis,Tariffs can be classified as: Specific tariffs Ta
4、xes 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 i
5、mported goods Example: A 20% ad valorem tariff on bicycles generates a $20 payment on each $100 imported bicycle.,6,A compound duty (tariff) is a combination of an ad valorem and a specific tariff. Modern governments usually prefer to protect domestic industries through a variety of nontariff barrie
6、rs, such as: Import quotas Limit the quantity of imports Export restraints Limit the quantity of exports,Basic Tariff Analysis,7,Supply, Demand, and Trade in a Single Industry Suppose that there are two countries (Home and Foreign). Both countries consume and produce wheat, which can be costless tra
7、nsported between the countries. In each country, wheat is a competitive industry. Suppose that in the absence of trade the price of wheat at Home exceeds the corresponding price at Foreign. This implies that shippers begin to move wheat from Foreign to Home. The export of wheat raises its price in F
8、oreign and lowers its price in Home until the initial difference in prices has been eliminated.,Basic Tariff Analysis,8,To determine the world price (Pw) and the quantity trade (Qw), two curves are defined: Home import demand curve Shows the maximum quantity of imports the Home country would like to
9、 consume at each price of the imported good. That is, the excess of what Home consumers demand over what Home producers supply: MD = D(P) S(P) Foreign export supply curve Shows the maximum quantity of exports Foreign would like to provide the rest of the world at each price. That is, the excess of w
10、hat Foreign producers supply over what foreign consumers demand: XS = S*(P*) D*(P*),Basic Tariff Analysis,9,MD,D,S,A,PA,P2,P1,Figure 8-1: Deriving Homes Import Demand Curve,Basic Tariff Analysis,10,Properties of the import demand curve: It intersects the vertical axis at the closed economy price of
11、the importing country. It is downward sloping. It is flatter than the domestic demand curve in the importing country.,Basic Tariff Analysis,11,P2,P*A,D*,S*,P1,XS,Figure 8-2: Deriving Foreigns Export Supply Curve,Basic Tariff Analysis,12,Properties of the export supply curve: It intersects the vertic
12、al axis at the closed economy price of the exporting country. It is upward sloping. It is flatter that the domestic supply curve in the exporting country.,Basic Tariff Analysis,13,Figure 8-3: World Equilibrium,XS,MD,Basic Tariff Analysis,14,Useful definitions: The terms of trade is the relative pric
13、e of the exportable good expressed in units of the importable good. A small country is a country that cannot affect its terms of trade no matter how much it trades with the rest of the world. The analytical framework will be based on either of the following: Two large countries trading with each oth
14、er A small country trading with the rest of the world,Basic Tariff Analysis,15,Effects of a Tariff Assume that two large countries trade with each other. Suppose Home imposes a tax of $2 on every bushel of wheat imported. Then shippers will be unwilling to move the wheat unless the price difference
15、between the two markets is at least $2. Figure 8-4 illustrates the effects of a specific tariff of $t per unit of wheat.,Basic Tariff Analysis,16,XS,PT,MD,D,S,PW,Basic Tariff Analysis,Figure 8-4: Effects of a Tariff,P*T,3,t,Home market,World market,Foreign market,17,In the absence of tariff, the wor
16、ld price of wheat (Pw) would be equalized in both countries. With the tariff in place, the price of wheat rises to PT at Home and falls to P*T (= PT t) at Foreign until the price difference is $t. In Home: producers supply more and consumers demand less due to the higher price, so that fewer imports are demanded. In Foreign: producers supply less and consumers demand more due to the lower price, so that fewer exports are supplied. Thus, the volume of wheat
