BAIB3004 Week 4 24/25 Lecture Recap

Front

Please define tariffs and identify the various types of tariffs discussed during the lecture.

Back

Tariffs are taxes imposed on imported goods or services. They are a common element in international trade, primarily used to reduce imports by increasing prices and to protect domestic producers.

The main types of tariffs discussed include: Specific Tariffs and Ad Valorem Tariffs.

Front

Can you articulate the distinguishing characteristics of each type?

Back

Specific Tariffs:

 

Fixed fees imposed on a physical unit of goods (e.g., per ton, kilogram, or item)

 

Do not vary with the value of the goods

 

Example: $30 tariff on a ton of steel2

 

Ad Valorem Tariffs:

 

Based on a percentage of the value of imported goods

 

Flexible and adjust with the price of the goods

 

Example: 10% tariff on a $1,000 piece of machinery would amount to $100

Front

Please define non-tariff barriers and identify the main categories of such barriers discussed in the lecture.

Back

Non-tariff barriers are measures that restrict imports or exports through means other than direct tariffs. They are trade restrictions that result from prohibitions, conditions, or specific market requirements that make importation or exportation of products difficult and/or costly.

The main categories of non-tariff barriers discussed include: Import Quotas, Subsidy and Voluntary Export Restraints (VERs).

Front

Graphical Analysis of Domestic and International Market Equilibrium

Back

Can you explain how changes in home demand or import supply influence the equilibrium price and quantity in the domestic market?

Additionally, how do trade policies such as tariffs or quotas alter this equilibrium, and what are the consequences for consumers and producers in both the home country and the foreign country?

Front

Can you explain the key metrics used to quantify protection, such as the effective rate of protection?

Back

Effective Rate of Protection (ERP)

The ERP measures the percentage change in value added for domestic producers resulting from a tariff structure. It accounts for tariffs on both final goods and inputs.

Front

What are some challenges in accurately calculating these measures?

Back

Data requirements: Calculating ERPs requires detailed input-output data and tariff information, which may not always be available or up-to-date.

 

Aggregation issues: Determining the appropriate level of industry aggregation can affect results.

 

Non-tariff barriers: ERPs typically focus on tariffs and may not capture the full extent of protection from non-tariff measures.

 

Substitution effects: The basic ERP model assumes fixed input coefficients, but in reality, producers may substitute inputs in response to tariff changes.

 

General equilibrium effects: ERP calculations don't account for economy-wide impacts of tariff changes.

 

Treatment of non-traded inputs: Deciding how to handle non-traded inputs in ERP calculations can be challenging.

 

Changing production technologies: ERP calculations may not accurately reflect rapid changes in production methods or global value chains.

 

Preferential trade agreements: Accounting for complex preferential tariff structures can complicate ERP calculations.

Front

Can you explain how import quotas function, including their types and effects on domestic and foreign markets?

Back

Import quotas are government-imposed limits on the quantity of a specific good that can be imported into a country. They are primarily used to protect domestic industries from foreign competition.

Effects of Import Quotas:

For domestic Market: increased prices for consumers, reduced overall supply of the good, increased market share for domestic producers, potential job creation in domestic industries

 

For foreign Market: reduced exports to the quota-imposing country, potential loss of revenue for foreign producers, may push up prices and make sales more profitable for the limited imports allowed.

 

Economic Welfare: net welfare loss to society as the increase in producer surplus is outweighed by the decline in consumer surplus.

Front

Additionally, how do subsidies impact trade dynamics, and why might they lead to international disputes?

Back

Subsidies are government financial support provided to domestic industries or producers. They can significantly impact trade dynamics and often lead to international disputes.

Why Subsidies Lead to International Disputes?

 

Unfair Advantage: Subsidies can create an uneven playing field in international trade, giving domestic producers an artificial advantage.

 

WTO Regulations: The WTO Agreement on Subsidies and Countervailing Measures provides rules for the use of government subsidies. Violations can lead to disputes.

 

Retaliatory Measures: Countries affected by subsidies may impose countervailing duties or initiate WTO dispute settlement procedures.

 

Global Economic Stability: Excessive use of subsidies can lead to 'subsidy wars', potentially destabilising global trade relationships.