Transcript Slide 1

Import Protection: Non-Tariffs Barriers
• Import Quota

Perfect Competition import quota

Equivalence to the tariffs

Import Quota under Monopoly

It causes more deadweight loss compared to the
tariffs
• Voluntary Export Restraints

Exporter can control for the export quantity, and
catch the “rent”.
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Import-Related Domestic Policy
• Direct import policy are restricted by the
GATT/WTO.
• Instead, countries appeal to domestic policies:

Industrial policies: production subsidy, cash
subsidy, tax reductions, R&D funding.

Government procurement

Regional Special Supports

Bureaucratic regulations
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Import-related Industrial Policy
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Import-related Industrial Policy
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Welfare Analysis
• More production, but same consumption.
• This causes import decrease.
• Consumer Surplus unchanged
• Producer Surplus up=a
• Gov Revenue=-(a+b)
• DWL=-b
• DWL under tariffs= -(b+d)
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Bureaucratic regulations
• Technical Requirement

Measurement: feet or meter

Transportation Regulations: LHS (HK,UK,JP, AUS)
or RHS
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Safety Regulation: Tire, Glass, Toy

Health Regulations:
Agreement on the Application of Sanitary and
Phytosanltary Measures.

Label and Package Regulation: rule of origin,
contents.
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Other Non-Tariffs-Barriers
• Specific customs procedure requirement
• Local Domestic Contents
• Import Monopoly Behavior
• Foreign Exchange Rate Manipulation
and Foreign Currency Control
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Contingent Protection
• Anti-dumping duties
• Anti-export-subsidy duties
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Anti-Dumping Duties
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Market Structure: Foreign Monopoly
No domestic firm
No foreign consumers
Home imposes anti-dumping duty t
Home Gov Revenue=c
Home Consumer Surplus=-(b+d)
If c>b+d, then home get welfare improve due
to the anti-dumping tax; otherwise, it is a loss.
• Because c can be decomposed into a+b; then
home gains provided that a-d>0
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Anti-Dumping Duties
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Anti-Dumping Duties
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World Welfare Change
• Importer’s change= a-d
• Exporter’s production change

Price gain-cost soar=b-c=-a

Production shrinks=Px*(Qx’-Qx)=e
• Total welfare change =home +foreign=a-d+ (-a-e)
• = -(d+e)
• world Deadweight Loss
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Anti Export Subsidy Duties
•
Japan
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US
• Now, US imposes an anti export subsidy
duty. Such money equals a part of the
amount paid from the Japan
Government but has effects on the U.S.
market.
• Then, the new equilibrium point is A,
export to the U.S. is still X0.
• US Loss=triangle_acd
• Japan Gain=Rectangle_abcd
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Analysis of the Welfare Change
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Production Subsidy
• All subsidies other than export subsidy
• Without production subsidy, free trade price is pw, and export X1.
• With production subsidy, Government subsidizes s to each unit
produced.
• Supply shifts rightward due to the cost decrease by s.
• But consumer still faces the same price since firms don’t need to
increase price, they already get support from the government
• Producer surplus=a+b+C
• Government expenditure: a+b+c+d
• DWL=d
• It is better than the export subsidy: DWL=b+d
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Production Subsidy
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Export Subsidy for Small Country
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Price Floor for Exporting Industries
• Price floor is not a trade policy, but it would foster or
discourage trade when the government uses such a
policy on exporting industries.
• Government always guarantees a price floor to the
exporting industries.
• Accordingly, the export is guaranteed(=X1) regardless
of the world price fluctuation.
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Price Floor for Exporting Industries
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Price Floor for Exporting Industries
• Welfare change:
• Producers gain=a+b+c
• Consumers loss=a+b
• Government Expenditure=b+c+d
• DWL=b+d
• Different from the export subsidy though they look
similar from the diagram.
• Under export subsidy, the subsidy for each unit of
exporting good is a constant; but it is flexible under
price floor scheme.
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Price Support for Import-Competing Industries
• Government provide a high fixed price for
commodities in some import sectors.
• This could change the trade pattern!
• Example: European Agricultural Commodities.
• Government pays subsidy for the price gap.
• Products are sold at the guaranteed price in the
domestic market, but sold at the world price in the
foreign market.
• The gap is subsidized by the government.
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Price Support for Import-Competing Industries
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Trade Sanctions
• Two types:
• Export Embargos
• Import Sanctions
• Example: the Helms-Burton Act:the
Iran/Libya Sanctions Act
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Export Embargos
• US imposes sanction to Cuba, but Russia still export
products to Cuba.
• This will affect the export supply curve in Cuba.
• It would be steeper due to the falling foreign supply.
• Sn: Supply curve for a non-executed country
• Se: Supply curve for an executed country
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Export Embargos
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Welfare Analysis for Export Embargos
• Without trade sanction, the gains from trade for the
USA=a; the gains from trade for Russia=b;
• With trade sanction, the supply curve is shifted up.
• In Cuba, the new quantities supplied is 15 since
Russia exports more to Cuba, but consumers in Cuba
has to pay more at a higher price.
• Cuba’s Loss=c+d due to the consumer loss
• U.S.’s Loss=a
• Russia’s Gain=c
• World Net loss=a+d
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Import Embargos
• US imposes sanction to Iran, but Japan still import
products from Iran.
• This will affect the import demand curve in Iran.
• How does it change?
• It would be steeper due to the falling foreign demand.
• Dn: Demand curve for a non-executed country
• De: Demand curve for an executed country
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Welfare Analysis for Import Embargos
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Welfare Analysis for Import Boycott
• Without trade sanction, the gains from trade for the
USA=a; the gains from trade for Japan=b;
• With trade sanction, the demand curve is steeper.
• In Iran, the new quantities demanded is 15 since
Japan imports more from Iran, but producers in Iran
now earn less for each quantity supplied.
• Iran’s Loss=c+d due to the producers loss
• U.S.’s Loss=a
• Japan’s Gain=c
• World Net loss=a+d
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Evaluate Trade Sanction
• Which one is worse? The sanctioned or the killer?
• Depends
• If the sanctioned has low export supply elasticity or
import demand elasticity, then it will get hurt
dramatically due to the trade sanction; otherwise, it
would not.
• Now consider a case that the sanctioned has a high
export supply elasticity
• But the killer faces different import demand elasticity
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Elastic & Inelastic Import Demand Curves
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Elastic & Inelastic Import Demand Curves
• In case (a), the two countries didn’t get much hurt
from the trade sanction since both of them have high
elasticities.
•
In case (b), the killer got much hurt from its sanction.
Its loss=a >the counterpart’s loss=c+d
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What factors affect the sanction’s effect?
• Trade openness: the smaller openness level, the less
importance of international trade, the higher the
elasticity is.
• Characteristics of the importing products: luxury or
necessity?
• Duration of the Sanction: the longer the sanction, the
smaller the impact is.
• Sanction Coverage: the more the countries’
participation, the larger the impact is.
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