Leipzig University Faculty of Economics and

Transcript:Leipzig University Faculty of Economics and:
Leipzig University Faculty of Economics and Business Administration Institute for Economic Policy International Economics Kristoffer J. M. Hansen IV. Interventionism: The Instruments of Trade Policy IV. Interventionism: The Instruments of Trade Policy Analysis of Tariffs Nontariff Barriers to Imports Pushing Exports Arguments for and Against Protectionism Summary Pugel, International Economics, pp. 138-251 1. Analysis of Tariffs A tariff is a tax levied when a good is imported. Specific tariffs are levied as a fixed charge of for each unit of goods imported (e.g., €5 per meter of cloth). Ad valorem tariffs are levied as a fraction of the value of the imported goods. There are two general purposes for tariffs: To generate revenue for the government; To protect particular domestic industries by limiting imports. Tariffs have declined over time in importance. Today, protection is more important than revenue. Simple Average of MFN Import Tariffs 2007 Source: WTO: World Tariff Profile 2008. A Preview of Conclusions Tariffs are barriers to trade and reduce the international division of labour and productivity. They reduce imports directly by lowering the amount of goods that can be profitably imported. And they reduce exports indirectly, since exports must be paid for with imports in the long run. We leave capital flows for later lectures! If we model it using standard diagrams and welfare analysis, a tariff always lowers global well-being. A “nationally optimal” tariff is possible for large countries. A tariff always helps the capitalists engaged in the production of import substitutes. Reduction of Trade Tariffs reduce imports into a country – but they also reduce its exports! This is so because in order to pay for a country’s exports, the recipient countries will have to have exports of their own of a similar monetary value. Alternatively, a flow of capital can offset the reduction in exports – but only temporarily. Example: country A and country B are trading with each other. Each year, goods worth €1,000,000,000 flow from A to B, and a similar amount flow from B to A. If A now imposes a tariff that reduces the flow of imports by 10 percent, this necessarily reduces the ability of country B to buy its exports. Recall: in the long run, commodities trade for commodities. Reduction of Trade This makes both countries poorer, as the international division of labour is diminished, and capital is now invested in less valuable production processes. Entrepreneurs in the