Welfare Loss to the Society

We present the following analysis to show that there is a significant loss to the society as a whole if the
U.S is allowed to impose tariffs on the imports of Shrimp. We illustrate our points using the following
graph to show the Dead Wight Loss (DWP) to the society verses the benefit to the Domestic Producers
and also how the consumers loose surplus

Figure 1

The above graph illustrates the customer surplus, the supplier surplus and the imports before the tariffs
were imposed.

Figure 2

The above graph illustrates the customer surplus, the supplier surplus and the imports after the tariffs
were imposed.
 Figure 3

As we moved from figure 1 to figure 2, there were changes in the customer surplus, the supplier surplus
and the imports. Figure 3 illustrates the differences.

As we know, the world prices for shrimp are lower than those of the domestic suppliers. At a price of
$3,010, the domestic suppliers are ready to supply 145,000 tons while the quantity demanded by the US
Consumers is 710,016 tons. The difference between the two is the amount of Shrimp
imported(Domestic Demand- Domestic Supply).The world price will increase by the amount of tariffs
which are 10%. So, the new world price is = $3,311 (3,010+.1*3,010). As the price increases the
domestic suppliers are willing to supply more and the domestic demand goes down. At a price of $3,311,
the domestic suppliers are ready to supply 152525 tons while the quantity demanded by the US
Consumers is 653,159 tons. The amount of imports will thus be the difference between the two.

As shown in the figure 3, change in the consumer surplus is a decrease of the Area = A+B+C+D= .
1*3,010*653,159+.5*.1*3,010*(710,016-653,159) =205,157,837.5 whereas, the change in the US
producer surplus is an increase of the area= A =.1*3,010*145,000+.5*.1*3,010*(152,525-145,000)
=44,777,512.5. The Amount of the government tax revenue is = C = .1*3,010*(653,159-152,525)
=150,690,834. Since this tax revenue will also be transferred to the suppliers, the supplier surplus would
be a sum of A and C= A+C= 44,777,512.5+150,690,834=195,468,346.5

The Amount of the total dead weight loss is the area= Loss of Consumer Surplus - Increase in Supplier
Surplus=(A+B+C+D)-(A+C)= B+D (B from the domestic overproduction and D from the too little
consumption of the world supply) = .5*.1*3,010*(710,016-653,159+152,525-145,000) = 9,689,491.

As we can see, there is a DWL of 9,689,491 to the society. We therefore propose against the application
of tariffs.
Effects of World Price

Another notable effect of the tariff is its effect on the world price of shrimp. As we have seen in the first
part of our analysis, we see that there is a dead weight loss(DWL) to the society caused by lesser
consumption. As the consumption of imported shrimp in the U.S will fall, this will lead to the excess
availability of Shrimp in the rest of the world. This excess availability of Shrimp implies that the Supply in
the rest of the world has increased which in turn will decrease the prices.

Figure 4

As the world price will decrease the prices for the US Customers will also decrease as the tariffs decrease
(10% of a lower price). This will increase consumer surplus for the US Customers and decrease Supplier
surplus. As the world price drops to Pnw, the price after tariff will also go down to Pnus. This will
increase the US Customer surplus by A+B. The Loss in US Supplier Surplus will be -A. Thus, the net
changes to Surplus will be A+B-A=B. The net welfare for the US ecosystem will increase.

It is important to note that there were exports from the world as the supply exceed demand in the
exporting countries ecosystem. As the supply increases further, it will lower the world prices further.
However, the resulting increase in customer surplus may not be as high as the decrease in the supplier
surplus. This will further result in a DWL. Thus, the welfare of the world as a whole will decrease.

Based on our analysis above, we urge the WTO to make a decision against tariffs on shrimp imports.