TOPIC 1 : TARIFF

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Đỗ Thị Thùy Linh
Trần Dư Huyền
Nguyễn Thị Mỹ Trang
Ngô Thảo Vy
1.
Introduction
While it is generally accepted that free trade maximizes world output and benefits
all nations, most nations impose restrictions on free flow of international trade.
Trade policies are advocated by special groups that stand to benefit from trade
restrictions.
Import vs. export tariffs
*An import tariff is a tax or duty levied on imported commodities.
- This is the most common form of tariff.
* An export tariff is a tax on exported commodities
- occasionally practiced in developing countries to generate government revenue.
FIGURE 8-2 Effect of Tariff on Consumer and Producer Surplus Consumer
surplus
can be derived from the market demand curve. When the nation moves to free
trade consumer surplus increases and imposition of tariff reduces this surplus.
Graphically, consumer surplus is the area under the demand curve and above the
price paid on every unit X. Consumer surplus at autarky is ARB. The imposition of
a tariff reduces this surplus by AGHB (i.e. by the difference between the
international price and the tariff price) to GRH.
Producer surplus can be derived from the market supply curve. When the nation
moves to free trade producer surplus decreases and imposition of tariff increases
this surplus. Graphically, producer surplus is the area below the price received by
domestic producer and above the supply curve on every unit of X sold. The
imposition of a tariff increases the producer surplus by AGIC. This is also known
as rent or payments that not need to be made in the long run to induce domestic
producers to supply additional 10X with the tariff. This increase in rent or producer
surplus is also known as the subsidy effect of tariff. Tariff redistributes income in a
nation From domestic consumers (who pay higher price for the commodity) to
domestic producers (who receive the higher price) From nation's abundant factor
(producing exports) to the scarce factor (producing imports). This leads to
inefficiencies, referred to as the protection costs or deadweight losses of the tariff
in an economy/nation.
FIGURE 8-3 Partial Equilibrium Costs and Benefits of a Tariff
The sum of CIM plus BHN represents the protection cost or deadweight loss to the
economy. Conclusion: Resulting Effects Of Tariff: Partial equilibrium analysis of a
tariff utilizes the nation's demand and supply curves of the importable commodity
and assumes that the domestic price of the importable commodity rises by the full
amount of the tariff. Partial equilibrium analysis measures the resulting effects of
Tariff: • Consumption effect Reduction in domestic consumption Production
effect→ Expansion of domestic production Trade effect→Decline in imports
Revenue effect→ Revenue collected by the government ■ Redistribution of
income from domestic consumers (who pay a higher price for the commodity) to
domestic producers (who receive a higher price) as a result of tariff . Partial
equilibrium analysis also indicates the following resulting effects of tariff: The
more elastic and flatter the demand curve, the greater the consumption effect i.e.
greater reduction in domestic consumption. The more elastic and flatter the
domestic supply curve, the greater the production effect i.e. greater expansion of
domestic production. The more elastic the demand and domestic supply curves, the
greater the trade effect i.e. greater decline in imports, and the smaller the revenue
effect i.e. lower the revenue collection by the government. When the nation moves
to free trade consumer surplus increases and imposition of tariff reduces this
surplus. When the nation moves to free trade producer surplus decreases and
imposition of tariff increases this surplus. This increase in rent or producer surplus
is also known as the subsidy effect of tariff. Tariff also redistributes income in a
nation- From domestic consumers (who pay higher price for the commodity) to
domestic producers (who receive the higher price) From nation's abundant factor
(producing exports) to the scarce factor (producing imports). This leads to
inefficiencies or efficiency loss, also referred to as the protection costs or
deadweight losses of the tariff in a nation. This efficiency loss arises because a
tariff distorts incentives to consume and produce. Producers and consumers act as
it imports were more expensive than they actually are. Because tariff is not
changing international price, tariff is collected by the nation itself. Finally, when a
small nation imposes an import tariff, the nation as a whole faces the unchanged
international price since the nation itself collects the tariff. Due to imposition of
tariff volume of trade for small nation declines, but terms of trade do not change.
As a small country cannot effect the terms of trade hence the efficiency loss in a
small country is more than the gains from trade, hence tariff reduces welfare for
the importing country
What is meant by an ad valorem, a specific, and a compound tariff? Are
import or export tariffs more common in industrial nations? in developing
nations?
 The ad valorem tariff is expressed as a fixed percentage of the value of the
traded commodity.
 The specific tariff is expressed as a fixed sum per physical unit of the traded
commodity.
 The compound tariff is a combination of an ad valorem and a specific tariff.
 In developing countries, the government will levy tariffs on imported goods
in industries in which it wants to foster growth. This increases the prices of
imported goods and creates a domestic market for domestically produced
goods while protecting those industries from being forced out by more
competitive pricing.
 Many developed countries have reduced tariffs and trade barriers, which has
improved global integration and brought about globalization. Multilateral
agreements between governments increase the likelihood of tariff reduction,
while enforcement of binding agreements reduces uncertainty. Industrial
countries invariably impose tariffs or other trade restrictions to protect some
(usually labor-intensive) industry, while using mostly income taxes to raise
revenues.
2.

The main functions of tariffs in industrial and developing countries have some
similarities but also some differences. Below is a general description of how
tariffs function in both types of countries:

Industrial countries:
1. Protection of domestic industry: Tariffs are applied to protect domestic industry
from unfair competition from imported products. Imposing tariffs helps increase
the cost of imported goods and makes domestic goods more competitive.

2. Generate revenue for the state budget: Tariffs are considered an important
source of revenue for the state budget. Collecting tariffs from imported goods helps
increase budget revenue, thereby supporting government operations and providing
public services to citizens.

3. Market control and management of imported goods: Tariffs can be used as a tool
to control the market and manage imported goods. Governments can impose tariffs
to ensure compliance with safety, environmental and quality regulations of goods.

The developing countries:

1. Generate revenue for the state budget: Tariffs are also an important source of
revenue for the state budget in developing countries. Collecting tariffs from
imported goods helps increase budget revenue and use this revenue to invest in
infrastructure, education and other development projects.

2. Encourage industrial development: Tariffs can be used to protect and encourage

the development of domestic industry. By imposing high taxes on imported goods
related to the industrial sector, the government can promote domestic production
and industrialization.

3. Controlling the market and protecting agriculture: Some developing countries

also impose tariffs to control the market and protect domestic agriculture. These
measures can help prevent unfair competition from imported agricultural goods,
while protecting domestic food supplies and ensuring food security.

However, the level of tariffs and related policies may vary depending on how each
country regulates its trade and economic development.

The impact of tariffs on consumption, production, trade, revenue and

redistribution can be described as follows:

1. Consumption: Tariffs can affect the prices of imported goods and services.
When tariffs are high, the price of goods increases, causing consumers to pay
more. This can reduce consumers' purchasing power and influence their choices
and levels of consumption.

2. Manufacturing: Tariffs can also affect domestic manufacturing activities.

Applying high tariffs on imported goods can increase production costs and reduce
the competitiveness of domestic companies compared to foreign companies. This
could affect production expansion, investment and job creation in the domestic
manufacturing sector.

3. Trade: Tariffs can affect the flow of goods and services across borders. The
application of high tariffs can increase import costs, limit import levels and reduce
export activities of domestic companies. This could have a negative impact on
international trade and trade between countries.

4. Revenue: Tariffs are used as a source of revenue for the government. Collecting
tariffs from imported goods and services can bring revenue to the national budget.
This revenue can be used to fund public programs, infrastructure investments and
other government activities.

5. Redistribution: Tariffs can have the effect of redistributing income in society.

When tariffs are imposed, the rich often pay more than the poor. In this way, tariffs
can be used to support income redistribution and reduce economic disparities
between social classes. However, the redistributive effects of tariffs can vary
depending on how they are designed and applied in each country.
Protection costs or deadweight loss of tariffs refer to the negative consequences
that tariffs cause in the economy. It includes the costs of implementing and
maintaining a tariff system, as well as the unnecessary economic losses caused by
restrictions on international trade, which increase the cost of goods and services,
causing affects consumers and businesses.

Measuring protection costs and deadweight loss from tariffs can be done using
the following methods:

1. Economic research: Economists examine the impact of tariffs on economic

activity such as increasing product costs and limiting competition and consumer
choice. They use academic methods and economic models to assess the costs and
losses of tariffs.

2. Statistics and market research: Researchers and statistical agencies collect data
on commodity prices, imports, exports, output and market competition to analyze
impacts of tariffs.
3. Comparative research: Compare countries with high and low tariffs to examine
differences in economic efficiency and protection costs.

4. Feedback from businesses and consumers: Businesses and consumers can

provide information about the impact of tariffs on their business operations and
purchasing choices.
In total, measuring the protection costs and deadweight loss of tariffs is a complex
process and requires thorough analysis of both economic data and relevant factors
to make an accurate assessment body.
3.
The primary function of tariffs in industrial nations is to protect domestic
industries and promote economic growth.
Tariffs are taxes imposed on imported goods, making them more expensive and
less competitive compared to domestically produced goods. By implementing
tariffs, industrial nations aim to:
1. Protect domestic industries: Tariffs provide a level of protection for domestic
industries by increasing the cost of imported goods. This helps prevent foreign
competition from undercutting local businesses and allows domestic industries to
maintain or increase their market share.
2. Encourage local production: Higher import costs due to tariffs can incentivize
companies to produce goods locally instead of relying on imports. This promotes
the growth of domestic industries, creates jobs, and stimulates economic activity
within the country.
3. Generate revenue: Tariffs can also serve as a source of government revenue. The
funds collected from tariff duties can be used for various purposes such as
infrastructure development, public services, or reducing budget deficits.
4. Correct trade imbalances: In some cases, tariffs may be used as a tool to address
trade imbalances between countries by reducing imports and promoting exports.
By making imported goods more expensive relative to domestically produced ones,
tariffs can help narrow trade deficits.
It's important to note that while tariffs have their intended benefits, they can also
lead to negative consequences such as higher prices for consumers and potential
retaliation from other countries through their own tariff measures (trade wars).
Therefore, governments must carefully consider the overall impact before
implementing tariff policies.
Import taxes have a major impact on all aspects of the economy, including
consumption, production, trade, revenue and redistribution. Here is what
import taxes mean in each of these aspects:
1. Consumption: Import taxes can affect prices and consumer choices. When
applying high taxes on imported goods, product prices will increase. This can
reduce consumers' purchasing power and affect purchasing decisions.
2. Production: Import taxes can affect domestic production activities. If high taxes
are applied to imported goods, domestic businesses can become more competitive
because domestic product prices are not affected by this tax.
3. Trade: Import taxes can create barriers to international trade and affect the flow
of goods across borders. Imposing high tariffs on goods from one country may
reduce imports from that country and encourage domestic production or sourcing
from other countries.
4. Revenue: Import taxes can generate revenue for the government. By applying
this tax, the government can collect money from importing goods into the country.
This can contribute to the public budget and be used to invest in other areas.
5. Redistribution: Import taxes can affect the allocation of resources and
redistribution of income in society. If a good is highly taxed, wealthier people may
continue to buy the good while poorer people cannot afford the high price due to
the tax.
In short, import taxes not only affect the purchase and sale of goods across borders
but also cause broad effects on a country's economy and society.
Governments often use case studies to protect and develop industry. Here are
some examples of commonly used research types:
1. Market Research: The government conducts studies to better understand the
trends and potential of industry in a region or country. The information obtained
from surveys, interviews and data analysis helps the government make strategic
decisions for protecting and strengthening the industry.
2. Science and technology research: The government can sponsor science and
technology research projects to discover, apply and create new advances in
industry. This could include aid to universities, organizations or businesses to
conduct experiments, find new solutions or build technology products/partnerships.
3. Competitor research: Governments often monitor and analyze the activities of
other countries in the industry to better understand the competition and potential of
the industry. The information obtained from competitor research helps the
government develop strategies to protect and strengthen industry in the global
environment.
4. Policy research: The government conducts research to evaluate the effectiveness
of adopted or proposed policies in protecting industry. This helps the government
adjust, redirect or create new measures to increase the viability and development of
the industry.

5. Social Research: From time to time, the government may conduct social surveys
to understand the opinions and wishes of citizens regarding the protection and
development of industry. This helps the government make decisions based on
community opinion and generate public support. The above studies are often used
to identify measures to protect, enhance and develop industry in a country.
However, the types of research can vary depending on the industry and
government goals.
Trade tensions and trade wars often begin with the escalation of tariffs
because countries can use this measure as a way to protect their economic
interests or achieve other political goals. . Here are some main reasons:
1. Protect domestic industry: A country can impose high tariffs to limit imports of
goods from other countries, to protect domestic industry from unfair competition
or to help increase Strengthen the competitiveness of domestic products.
2. Generate economic benefits: Imposing tariffs can be used as a measure to
generate income for the state budget through collecting money from imported
goods. This can help regulate cash flow and stabilize the economy.
3. Political leverage: Countries can impose high taxes or establish trade barriers to
motivate other countries to take specific political or economic actions. Imposing
tariffs can be used as a tool to coerce other countries into complying with demands
or reaching agreement on important issues.
However, escalating tariffs could cause tension and escalate into a trade war,
adversely affecting the global economy. These protectionist measures could lead to
higher prices for consumers, weaken global supply chains and harm businesses and
industries. Therefore, resolving tensions and building a stable business
environment through negotiations is very important to maintain sustainable
development of the global economy.
Tariffs are an economic tool used by many countries during recent trade
tensions because they can have major effects on other countries' exports and
imports. Here are some reasons why tariffs are used as a tool in trade
tensions:
1. Industry Protection: Tariffs can be imposed to protect domestic industry from
unfair competition from cheap imported products. By imposing high tariffs on
imported goods, countries can create benefits for domestic industries and
encourage consumption of domestically produced goods.
2. Increase budget revenue: Tariffs can bring income to the government through
revenue collection from export and import activities. In particular, based on high
tax rates, the government can increase revenue from cross-border goods
transactions.
3. Trade Negotiations: Imposing tariffs can be used as a tool in trade negotiations.
By imposing high tariffs on goods imported from another country, a country can
create economic pressure to achieve better terms and conditions in exporting its
products or to minimize unfair policies of trading partners.
4. Responding to economic tensions: In the event of economic tensions or a trade
war, imposing tariffs can be used as a response. Countries may impose high tariffs
on goods imported from other countries to harm their opponents' economies and
protect domestic industries.

4. Analyze the tweet of Donald Trump:

Key Points:

Donald Trump declares himself as "Tariff Man," expressing his desire to impose
tariffs on those who exploit the wealth of the United States.
He believes that charging others for accessing the US market will maximize the
country's economic power.
Trump asserts that the current implementation of tariffs is resulting in billions of
dollars being collected, which he sees as a means to make America prosperous
again.
Analysis:
In this tweet, Donald Trump presents a positive sentiment towards his stance as
"Tariff Man" and his strategy of using tariffs to benefit the United States. He
considers the imposition of tariffs as a way to counteract what he perceives as
other nations or individuals exploiting America's resources and wealth. According
to Trump, making them pay for the privilege of accessing the US market is not
only an effective approach but also a means to boost the nation's economic
strength.
Trump further supports his viewpoint by claiming that the current implementation
of tariffs has resulted in the collection of billions of dollars. By emphasizing this
economic benefit, he aims to show that his approach is working and can contribute
to making America financially prosperous once again.
Overall, this tweet reflects Trump's positive outlook towards the use of tariffs as a
tool for protecting American interests and generating economic gains.
In this tweet, Donald Trump refers to himself as "Tariff Man" and expresses his
belief in imposing tariffs on people or countries that he perceives as taking
advantage of the United States' wealth. He states that he wants them to pay for the
privilege of doing so, suggesting that tariffs are a means to maximize economic
power.
Trump emphasizes the benefits of imposing tariffs by claiming that the United
States is currently generating billions of dollars through these measures. He
concludes his tweet with the phrase "MAKE AMERICA RICH AGAIN," which
echoes his campaign slogan "Make America Great Again."
Overall, this tweet reflects Trump's support for protectionist trade policies and his
belief in using tariffs as a tool to protect American economic interests.