NSS Exploring Economics 6
Chapter 12 International trade (II) — trade barriers and external trade of Hong Kong
Questions
p.150
Think it over
1.
Why do many governments impose duties on imported goods?
2.
What are the effects of the imposition of duties on the price of imported goods, the volume of imports, the consumer surplus of domestic consumers and the producer surplus of domestic producers?
3.
Why does the Hong Kong Government impose duties on very few types of imports?
p.151
Discuss
12.1
Explain how the imposition of tariffs and quotas may restrict international trade and protect domestic industries.
p.154
Discuss
12.2
‘Free trade benefits everybody in an economy.’ Do you agree? Explain.
Test
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With the help of TWO diagrams, compare the situation without trade and the situation with trade and show the gains from trade. Do all domestic consumers and domestic producers benefit from trade? (8 marks)
2.
With the help of a diagram, illustrate why the imposition of a quota would benefit domestic producers but harm domestic consumers and bring a deadweight loss to an economy. (8 marks)
Structured Questions
1*.
In China, the import of cotton is subject to a unit tariff. After its entry into the World Trade
Organization, China has to reduce its tariff on cotton. Suppose the world price of cotton remains unchanged after the tariff reduction.
a. With the help of a diagram, illustrate how the reduction in the tariff affects the domestic price, domestic consumption, domestic production and volume of imports of cotton. (7 marks)
b. How does the tariff reduction affect the consumer surplus, producer surplus, government revenue and total social surplus? (5 marks)
2**.
a. Compare the effects of an increase in domestic demand on the domestic price, domestic consumption, domestic production and volume of imports if a country imposes a tariff and a quota on its imports, respectively. (12 marks)
b. Would consumers prefer a tariff or a quota in the above situation? (2 marks)
Answers
P.150
Think it over
1. They mainly want to cut the volume of imports so as to protect their
“The increase in consumption of raw cotton has been rapid and steady for beyond all precedents in any other manufacturer” (Beckert, 86). The process of cotton has increased since the production had started and many places which could produce cotton, can no longer keep up with the demand that is being asked. The third main point is the expansion of cotton in other parts of the world, cotton was being grown everywhere. Brazil cotton first got to England in 1781 and surpassed Caribbean. “By the 1780s, slaves in the West Indies and South America . . . on world markets” (Beckert,94).
2a. Consumers would certainly see a hike in prices on the imported product and in turn could affect the consumer’s ability to afford neither the domestic made clothing nor foreign made clothing.
b. Look at the Tariff Chart on page A57 of the Appendix. At their peak in 1828, tariff duties on imported goods amounted to 60 percent of their value. In 1996, that tariff rate amounted to only about 5 percent. The authors say
In modern economic policy of nations and states, the tariffs a tool to tax goods and services being imported. The principal desired outcome for this tool is to create security for the domestic industry from the imported product, which may be cheaper for consumers to purchase. (McEachern, 2015)
· What happens when there is a surplus of imports brought into the U.S.? Cite a specific example of a product with an import surplus, and the impact that has on the U.S. businesses and consumers involved. When there is a surplus of imports brought into the U.S. it means that the price of the product(s) will drop. U.S. companies that are competing with the Chinese made products will suffer from price drops of the goods. With consumers it will benefits the consumer with the lower price on goods. Large screen LCD/HDTV is a good example. Since the recession there has been a surplus of large screen HDTV. Not many people can afford or buy them since the prices were high. Now large screen LCD/HDTV is much cheaper than what it was 4 years ago.
3. Suppose that before trade takes place, the United States is at a point on its PPC where it produces 20 loaves of bread and 20 units of steel. Once trade becomes possible, the price of a unit of steel is 2 units of bread. In response, the United States moves along its PPC to a new point where it produces 30 unites of steel and 10 units of bread. Is the country better off?
With the elimination of U.S. government subsidies, cotton textile manufacturers will pay more for cotton. As the leading buyer of cotton, the Chinese apparel industry’s profitability will be reduced due to their inability to pass on increased cotton prices to their buyers. China’s manufacturing costs had already increased by as much as 40% due to higher market wages and costs with complying with worker and environmental protections. Although China has substantial labor and is accused of utilizing sweat shops to keep their costs extremely low, their increasing manufacturing costs have opened the door to other countries with cheap labor such as Vietnam and Pakistan.
We can use Welfare Economics and Gains from Trade to conclusively state that we will be worse off as a country due to sugar tariffs (Landsburg, 2009). In more detail the import restriction of sugar at world prices assures that we will have a constriction of supply from the world market and unmet demand from domestic consumers (Landsburg, 2009). The cost to us will be the dead weight loss associated with the restriction of imports.
(1) Imposing quotas on imported goods. Import quota is the limitation on the quantity of a goods that can be imported into a country. This measures would have the impact of reducing imports. Importers cannot import such products exceeds the quota.
One problem that trade barriers have caused is that they increase the cost of enterprises, affecting the international competitiveness of enterprises. For a long time, due to the low technological content of Chinese export products, mainly to win international markets at low prices, the developed countries have adopted some ways, such as the green subsidy system, the green packaging system, the green fortress and so on. By imposing import surcharges, increasing the cost of
The key important role of government intervene in international trade is interest to protect the domestic producers in their country. Political arguments concerned with protecting the interests of one group, which are producers often at the expense of another within a nation, which are consumers. First, government should protect jobs and
Over 2001-2002, world cotton prices fell by almost 40% as a response to government subsidies in market-dominators Europe, China and the United States, a trend towards using synthetic fibres, and economic downturn decreasing the demand for garments.
The international trade of goods across the world accounts for approximately 60% of the world Gross Domestic Product (The World Bank, 2014). A great proportion of goods transactions occur every second. The primary question is whether international trade benefits a country as an entirety, and, if so, why would a country implement protective trade policies to restrict particular exports? To address this question, this essay aims to explore the impact of trade on various economic stakeholders, including consumers, producers, labour and government and, furthermore, will compare models and theories with reality to ascertain the true winner/ loser in the international trade market.
Governments intervene in international trade through use of tariffs that are levied on both imports and exports. The government may either impose fixed tariffs that are calculated per unit of the import commodity or the ad valorem tariff that is calculated as a fixed percentage of the monetary value of the imported commodity. The government imposes high import tariffs in order to control the rate of imports by making the imports more expensive in comparison to the domestically produced substitutes. The tariffs increase the prices of goods and services thus reducing the quantity demanded (Misra and Yadav 2009). The use of tariffs is detrimental to international trade since it lowers competition and results in high prices of commodities in the markets. The tariffs discourage imports and domestic producers benefit from the higher prices and reduction in competition. The EU uses variable
International trade is to explain why countries to import and export cargo, and barriers to trade and many different steps and trade barriers have been taken down and explain some economic factors must be protected trade.