International Economics

Chapter 9 - The instruments of trade policy

What’s the point of a tariff?

• Raise the cost of shipping goods to a country.
• Raise revenue for the country (deprecated, currently about 2% of revenue)
• Protect particular domestic sectors.

Types of tariff

• Specific tariff - fixed charge per imported item (e.g. 3 dollars per imported barrel of oil.)
• Ad valorem - percent of imported good.

Other nontariff barriers

• import quotas
• export restraints

“Trade arises if prices are different in the absence of trade.”

• If prices were equal, then you’d just buy from your domestic industry

“A tariff is just like a cost of transportation.”

• Except it could elicit a retaliatory tariff

“part of the effect of a tariff will be to lower foreign export prices rather than to raise domestic prices. This effect of trade policies on foreign export prices is sometimes significant”

Tariffs provide some degree of “protection” for domestic industries.

“A tariff raises the price of a good in the importing country and lowers it in the exporting country.”

• Country produces X amount of goods.