International Trade the World Economy Charles van Marrewijk

International Trade & the World Economy; Charles van Marrewijk CHAPTER 8; TRADE POLICY Introduction Tariffs, quota's, and other trade restrictions Tariffs and partial equilibrium Tariffs and general equilibrium Chapter 8 tool: offer curves General equilibrium with offer curves The "optimal" tariff? Optimal tariffs and retaliation Tariffs in the USA Conclusions

International Trade & the World Economy; Charles van Marrewijk CHAPTER 8; TRADE POLICY Introduction Tariffs, quota's, and other trade restrictions Tariffs and partial equilibrium Tariffs and general equilibrium Chapter 8 tool: offer curves General equilibrium with offer curves The "optimal" tariff? Optimal tariffs and retaliation Tariffs in the USA Conclusions

International Trade & the World Economy; Charles van Marrewijk Introduction James Meade (1907 -1995)

International Trade & the World Economy; Charles van Marrewijk CHAPTER 8; TRADE POLICY Introduction Tariffs, quota's, and other trade restrictions Tariffs and partial equilibrium Tariffs and general equilibrium Chapter 8 tool: offer curves General equilibrium with offer curves The "optimal" tariff? Optimal tariffs and retaliation Tariffs in the USA Conclusions

International Trade & the World Economy; Charles van Marrewijk Tariffs, quota's, and other trade restrictions There are many types of trade restrictions, e. g. specific tariffs, ad valorem tariffs, quota, subsidies, prohibitions, minimum content, etc. Multilateral rounds by GATT/WTO have reduced the tariff levels considerably

International Trade & the World Economy; Charles van Marrewijk CHAPTER 8; TRADE POLICY Introduction Tariffs, quota's, and other trade restrictions Tariffs and partial equilibrium Tariffs and general equilibrium Chapter 8 tool: offer curves General equilibrium with offer curves The "optimal" tariff? Optimal tariffs and retaliation Tariffs in the USA Conclusions

International Trade & the World Economy; Charles van Marrewijk Tariffs and partial equilibrium; small country

International Trade & the World Economy; Charles van Marrewijk Tariffs and partial equilibrium; large country

International Trade & the World Economy; Charles van Marrewijk CHAPTER 8; TRADE POLICY Introduction Tariffs, quota's, and other trade restrictions Tariffs and partial equilibrium Tariffs and general equilibrium Chapter 8 tool: offer curves General equilibrium with offer curves The "optimal" tariff? Optimal tariffs and retaliation Tariffs in the USA Conclusions

International Trade & the World Economy; Charles van Marrewijk Tariffs and general equilibrium Tariff raises production of protected good, lowers production of other good trade reduced

International Trade & the World Economy; Charles van Marrewijk Tariffs and general equilibrium Tariffs double distortion: for production and consumption

International Trade & the World Economy; Charles van Marrewijk CHAPTER 8; TRADE POLICY Introduction Tariffs, quota's, and other trade restrictions Tariffs and partial equilibrium Tariffs and general equilibrium Chapter 8 tool: offer curves General equilibrium with offer curves The "optimal" tariff? Optimal tariffs and retaliation Tariffs in the USA Conclusions

International Trade & the World Economy; Charles van Marrewijk Chapter 8 tool: offer curves Offer curve depicts all combinations of export supply in exchange for import demand

International Trade & the World Economy; Charles van Marrewijk CHAPTER 8; TRADE POLICY Introduction Tariffs, quota's, and other trade restrictions Tariffs and partial equilibrium Tariffs and general equilibrium Chapter 8 tool: offer curves General equilibrium with offer curves The "optimal" tariff? Optimal tariffs and retaliation Tariffs in the USA Conclusions

International Trade & the World Economy; Charles van Marrewijk General equilibrium with offer curves Intersection offer curves gives trade equilibrium

International Trade & the World Economy; Charles van Marrewijk CHAPTER 8; TRADE POLICY Introduction Tariffs, quota's, and other trade restrictions Tariffs and partial equilibrium Tariffs and general equilibrium Chapter 8 tool: offer curves General equilibrium with offer curves The "optimal" tariff? Optimal tariffs and retaliation Tariffs in the USA Conclusions

International Trade & the World Economy; Charles van Marrewijk The ‘optimal’ tariff? Imposing tariff rotates offer curve, influences equilibrium

International Trade & the World Economy; Charles van Marrewijk The ‘optimal’ tariff? Tangency of trade indifference curve with foreign offer curve determines ‘optimal’ tariff

International Trade & the World Economy; Charles van Marrewijk CHAPTER 8; TRADE POLICY Introduction Tariffs, quota's, and other trade restrictions Tariffs and partial equilibrium Tariffs and general equilibrium Chapter 8 tool: offer curves General equilibrium with offer curves The "optimal" tariff? Optimal tariffs and retaliation Tariffs in the USA Conclusions

International Trade & the World Economy; Charles van Marrewijk Optimal tariffs and retaliation Tariff war leads to bad outcome for all

International Trade & the World Economy; Charles van Marrewijk CHAPTER 8; TRADE POLICY Introduction Tariffs, quota's, and other trade restrictions Tariffs and partial equilibrium Tariffs and general equilibrium Chapter 8 tool: offer curves General equilibrium with offer curves The "optimal" tariff? Optimal tariffs and retaliation Tariffs in the USA Conclusions

International Trade & the World Economy; Charles van Marrewijk Tariffs in the USA

International Trade & the World Economy; Charles van Marrewijk CHAPTER 8; TRADE POLICY Introduction Tariffs, quota's, and other trade restrictions Tariffs and partial equilibrium Tariffs and general equilibrium Chapter 8 tool: offer curves General equilibrium with offer curves The "optimal" tariff? Optimal tariffs and retaliation Tariffs in the USA Conclusions

International Trade & the World Economy; Charles van Marrewijk Conclusions • There are many different types of trade restrictions • Imposing tariffs leads to winners (some producers and the government) and losers (other producers, consumers, and abroad) • Net welfare is negative if the country is ‘small’ (efficiency loss, Harberger triangles) • Net welfare effect is potentially positive if the country is ‘large’ (= can influence the world relative price level; ‘optimal’ tariff) • Net welfare effect also negative for large country with retaliation • quota equivalent to tariff, except for distribution tariff revenue • human capital intensive manufactures exports mainly in OECD countries, Central Europe, and Latin America (next slide)

International Trade & the World Economy; Charles van Marrewijk Conclusions Human capital intensive man. ; share of exports (%), 1998; Source: ITC