Feenstra Taylor Chapter 8

8 1
A Brief History of the

World Trade
IMPORT TARIFFS AND Organization
2
QUOTAS UNDER The Gains from Trade
3
PERFECT COMPETITION Import Tariffs for a
Small Country
4
Import Tariffs for a
Large Country
5
Import Quotas
6
Conclusions
Introduction
• During the 2000 presidential campaign, President

George W. Bush promised to consider
implementing a tariff on the imports of steel.
• This was a political move to secure votes in large

steel-producing states as the tariffs would
“protect” the domestic producers of steel.
• The steel tariff is an example of a trade policy—a

government action meant to influence the amount
of international trade.
© 2008 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor 2 of 136

Introduction
• Because gains from trade are unevenly spread,
producers often feel the government should help
them limit losses due to competition from trade.
• Trade policy can include the use of import tariffs
(taxes on imports), import quotas (limits on
imports), and subsidies for exports.
• We will assume that firms are perfectly
competitive. They produce a homogeneous good
and are small compared to the market.
 Firms are price takers

The Gains from Trade
• We will now demonstrate the gains from trade using
Home demand and supply curves, together with the
concepts of consumer surplus and producer
surplus.
• Consumer and Producer Surplus

 Figure 8.1 (a) shows the Home demand curve D where
consumers face a price of P1.
 Remember, CS is the difference between the price the
consumer is willing to pay and the actual price.
 Part (b) of figure 8.1 illustrates producer surplus.

 Remember that PS is the difference between MC and
price, where the supply curve represents a firm’s MC.

Figure 8.1 (a) Adding up all curve

the individual
The demand gives us the
surplus for each
consumer’s valuepoint on the
for each unit of
A consumer
demand
the who
good.curve
Given Ppurchases
gives us total D2
1, consumers
Price has buy
a value
consumer
will of Pof2,Dbut
surplus—the
a total only
areahas
Total Consumer 1.
surplus, CS between – that
to pay P1the gives and
demand surplus
the
equalpaid—up
price to (P2-P1)to the quantity
sold
P2
P1
Surplus for
consumer D
purchasing quantity
D2 D2 D1 Quantity

Figure 8.1 (b)

A The supply
producer
Adding who
up all curve
thesellsgives
S0 has
individual us athe
MCconsumer’s
of P0, but
surpluses valuePpoint
gets
for each for each
1. That
on theunit of
Price the surplus
gives
supply good.
curveGiven
equalPus
gives 1, total
to producers
(P 1-P0)
will sell surplus—the
producer a total of S1. area
between the supply and the price
Total Producer S
surplus, PS
received—up to the quantity sold.
P1
P0
Surplus for firm producing
quantity S0
S0 S1 Quantity

APPLICATION
• No trade equilibrium • Again we consider the
Figure 8.2 world of two countries,
Price
Home and Foreign, with
No-trade equilibrium producers and consumers.
S • Total Home welfare can be
CS measured by adding up
PA A consumer and producer
surplus.
PS
D
• We will compare the
welfare in Home in no-
trade and free-trade
situations.
Q0 Quantity

• Free Trade for a Small Country

 Suppose Home can now engage in trade.
 The world price PW is determined by the supply and

demand in the world market (shown in in figure 8.2 (b)).
 Suppose Home is a small country.

 Price taker in the world market
 Faces a fixed price at PW
 Assume PW is below the Home no-trade price PA.
 At the lower price, Home will be an importer of the

product at the world price.

Figure 8.2
At lower world price,
(b) Free Trade consumer surplus increases
Price to a+b+d  an increase of
b+d from no-trade
S At lower world price,

producer surplus falls to c
a  a decrease of b from
no-trade
PA
b
d Gain in trade is triangle d
PW with area equal to
c
½(M1)(PA-PW)
D
S1 D1 Quantity
Imports, M1

• Home Import Demand Curve

 We can derive the import demand curve, shown in
figure 8.3
 The relationship between the world price of a good and the
quantity of imports demanded by Home consumers.
 At the no-trade equilibrium, there are zero imports
 This is shown as point A′ in panel (b).
 At the world price of PW, the quantity demanded is
greater than quantity supplied, and we import M1.
 This is point B in panel (b).
 Joining A′ and B gives import demand curve M.

Figure 8.3
(a) (b)
No-trade
equilibrium
Each point on the import
Price Price
demand curve is a point
S that corresponds to Home
imports at a given Home
price
A'
PA
A
B
PW
Import demand
D curve, M
S1 Q0 D1 Quantity M1 Imports
Imports, M1

Import Tariffs for a Small Country
• Free Trade for a Small Country

 Since Home is a small country, the tariff does not affect
world prices.
 The Foreign export supply curve X* is horizontal at the
world price PW.
• Effect of the Tariff

 The new export supply curve shifts up to X*+t.
 Quantity demanded falls while quantity supplied rises
 However, as firms increase the quantity produced, the
marginal costs of production rise.
 The domestic price will equal the import price.

Figure 8.4 Home price rises by the amount
of the tariff.
No-trade
Home supply increases and
equilibrium
Home demand decreases 
Price Price
Imports fall to M2
S
C
PW+t X*+t
B Foreign export
PW supply, X*
D M
S1 S2 D1 Quantity M2 M1 Imports
D2
M2

• Effect of the Tariff on Consumer Surplus

 With the tariff, consumers now pay the higher price,
PW+t, and their surplus is the area under the demand
curve and above the higher price, PW+t.
 The fall in consumer surplus due to the tariff is the area

in-between the two prices and to the left of Home
demand, (a+b+c+d) in panel (a.1) of figure 8.5.
 This area is the amount that consumers lose due to the

higher price caused by the tariff.

Figure 8.5 (a.1)
No-trade
equilibrium Lost consumer surplus due
to the higher price with the
Price tariff is equal to the shaded
S area (a+b+c+d)
b d
PW+t
a c
PW
S1 S2 D2 D1 Quantity
M2

• Effect of the Tariff on Producer Surplus

 With the tariff, producer surplus is the area above the
supply and below the higher price, PW+t.
 Since the tariff increases Home price, firms can sell

more goods, and producer surplus increases
 This area, a in figure 8.5 (a.2), is the amount that Home

firms gain due to the higher price caused by the tariff.
 Increases in producer surplus can benefit Home

workers but at the expense of consumers.

Figure 8.5 (a.2)
No-trade
equilibrium
The gain in producer
Price surplus due to the higher
S price with the tariff is equal
to the shaded area (a)
A
b d
PW+t
a c
PW
M2

• Effect of the Tariff on Government Revenue

 In addition to the tariff’s impact on consumers and
producers, it also affects government revenue.
 The amount of revenue collected is the tariff t times the
quantity of imports (D2 – S2).
 In figure 8.5 panel (a.3), the revenue is shown by area
c.
 The collection of revenue is a gain for the government
in the importing country.

Figure 8.5 (a.3)
No-trade The gain in government
equilibrium revenue due to the tariff is
Price equal to the shaded area
(c)
S
This equals the tariff, t,
A times the quantity of
imports, M2
b d
PW+t
a c
PW
M2

• Overall Effect of the Tariff on Welfare
• Note, we do not care whether the consumers facing higher
prices are rich or poor, and do not care whether the
specific factors in the industry earn a lot or a little.
• The overall impact of the tariff in the small country can be
summarized as follows:
Fall in consumer surplus -(a+b+c+d)
Rise in producer surplus +a
Rise in government revenue +c
Net effect on Home welfare -(b+d)
• The areas b and d in figure 8.5 (a) correspond to the

triangle (b+d) in figure 8.5 (b) and is the net welfare loss.
 We refer to this area as a deadweight loss—it is not offset by a
gain elsewhere in the economy.

Figure 8.5 (a)
No-trade The deadweight loss is the
equilibrium loss to Home that is not
offset by a corresponding
Price
gain
S
a is a transfer from consumers
A to producers
b d c is a transfer from consumers

PW+t to government
a c (b+d) is deadweight loss—
PW losses not offset by other gains
b = production distortion
D d = consumption distortion
M2

Figure 8.5 (b)
Price
Dead weight loss
due to tariff, b+d
X*+ t
C
X*
M
M2 M1 Imports

Why are Tariffs Used?
• Why do so many countries use tariffs if they
always lead to deadweight losses?
 One idea is that developing countries do not have any
other source of revenue.
 Import tariffs are “easy-to-collect” relative to income taxes.
 However, to the extent that developing countries recognize that
tariffs have a higher deadweight loss, we would expect that
over time they will shift away from such “easy-to-collect” taxes.
 A second reason is politics.

 The might government care more about producer surplus than
consumer surplus.
 The benefits to producers (and their workers) are typically more
concentrated on specific firms and states than the costs to
consumers, which are spread nationwide.

U.S. Tariffs on Steel
APPLICATION
• We will estimate the deadweight loss due to the
U.S. steel tariff in place from March 2002 to
December 2003.
• President Bush requested that the U.S.
International Trade Commission (ITC) initiate a
Section 201 investigation into the steel industry.
• The tariffs varied across products, ranging from
10 to 20%—shown in Table 8.1—then falling over
time to be eliminated after 3 years.
2008 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor 24 of 136

APPLICATION
• President Bush took the recommendation of the
ITC but applied even higher tariffs, ranging from
8% to 30%.
• Knowing the U.S. trading partners would be upset
by this, President Bush exempted some countries
from the tariffs.
 These included Canada, Mexico, Jordan, and Israel,
which all have free trade agreements with the U.S., and
100 small developing countries that were exporting only
a very small amount of steel to the U.S.

APPLICATION
Table 8.1

APPLICATION
• Deadweight Loss due to the Steel Tariff
 We need to estimate the areas of triangle b+d we found in figure
8.5(b).
 The base is the change in imports, ΔM, and the height is the
increase in domestic price, ΔP = t.
 Deadweight loss then equals DWL = ½ t ΔM.
 It is convenient to measure the deadweight loss relative to the

value of imports, which is PW*M.
 We will also use the percentage tariff, t/PW, and the percentage
change in the quantity of imports, % ΔM = ΔM/M.

APPLICATION
Price Figure 8.5 (b) We can measure DWL

with the area of the
triangle b+d from figure
8.5 (b)
Deadweight loss due
to the tariff, b+d DWL = ½ t ΔM
PW+t
t c
PW
M2 M1 Imports
ΔM

APPLICATION
• Using these definitions, the deadweight loss
relative to the value of imports can be rewritten
as:
DWL  1  tM 1 t 
  W   W %M
P M 2 P M 2 P
W

• The most commonly used products had a
tariff of 30%, so the percentage increase in
the price is t/PW = 0.3, leading to %ΔM = 0.3.

APPLICATION
• This leads to a DWL of

DWL 1  t  1
  W %M  (0.3)(0.3)  4.5%
P M 2 P
W
 2
• The value of steel imports affected by the tariff

was about $4.7 billion prior to March 2002 and
$3.5 billion after March 2002.
 Average imports over the two years were $4.1 billion.
• The dollar magnitude of deadweight loss is equal to $185

million.
Import Tariffs for a Large Country
• Under the small country assumption that we have

used so far, the importing country is always
harmed due to the tariff.
 The small country is a world price taker.
• If we consider a large enough importing country or

a large country, however, then we might expect
that its tariff will change the world price.
 Its imports are large enough that it can affect world
price with a change in its imports.

• Foreign Export Supply
 If the Home country is large, then the Foreign export
supply curve X* is no longer horizontal at the world
price PW.
 We construct the Foreign export supply curve in a
fashion similar to the import demand curve.
 In panel (a) of figure 8.6, we show the Foreign demand
curve D* and supply curve S*, giving price of PA* at A*.
 At this point, Foreign exports are zero. Suppose the world price
is PW above PA*.
 At the higher price, there is a Foreign excess supply of

X1* = S1* - D1*, which will be exported at the price of
PW at point B*.
Figure 8.6
(a) Foreign Mkt (b) World Mkt
World price increases to PW,
Pric increasing exports to X1* Price
This gives us our Foreign
e export supply curve for the
At the world price, PA*,
large country
exports are zero at A*’ Foreign export
D* S* supply, X*
B*
PW
Home import
PA* demand, M
A*'
A*
D1* S1* Quantity X1* Exports
Foreign exports, X1*

• Effect of the Tariff

 Figure 8.7 we show the effect when Home applies a
tariff of t dollars on imports.
 Foreign export supply curve shifts up by exactly the

amount of the tariff, shifting from X* to X*+t.
 The Home price rises by less than t, and the Foreign

producers receive, P*, which is less than PW.
 The tariff drives a wedge between what Home

consumers pay and what foreign producers receive,
with the difference, t, going to the Home government.

Figure 8.7
(without welfare effects)
(a) Home market (b) Foreign market
Price Price
No-trade
equilibrium
S X*+t
A
t X*
C
P*+t
t PW
t
B*
P*
D C*
S1 S2 D2 D1 Quantity M2 M1 Imports
M2
M1

• Home Welfare
Rise in government revenue +(c + e)
Net effect on Home welfaree – (b+d) + (e)
• The triangle (b+d) is the deadweight loss due to

the tariff.
• Area e offsets part of the loss.
• If e > (b+d), then Home is better off.
• If e < (b+d), then Home is worse off.

Figure 8.7
(with welfare effects)
If the gain of e is greater than the loss of (b+d), Home gains

No-trade
Price equilibrium Price
X*+t
S
b+d t X*
A
C
P*+t
a b c d
PW B*
P*
e e C*
D
M

• Home welfare may improve, but it comes at the expense of
foreign exporters.
• Foreign and World Welfare

 The Foreign loss, measured by (e+f) also in figure 8.7, is the loss in
Foreign producer surplus from selling fewer goods to Home at a
lower price.
 The area e is the terms-of-trade gain for Home (P*<PW) but an
equivalent terms-of-trade loss for Foreign.
 Additionally, there is an extra deadweight loss in Foreign of f, giving
a combined total greater than the benefits to Home.
 Therefore, it is sometimes called the “beggar thy neighbor” tariff.
• There is a world welfare loss = b + d + f

Figure 8.7
(with welfare effects)
Foreign loses (e+f) as loss of Foreign producer surplus,
from selling fewer goods at a lower price
No-trade
Price equilibrium Price
X*+t
S
b+d t X*
A
C
P*+t
a b c d
PW B*
P*
e e f
D C*
M

U.S. Tariffs on Steel Once Again
APPLICATION
• Optimal Tariff
 Compute the deadweight loss (area b+d) and the terms-of-
trade gain (area e) for each imported steel product.
 Rather than do all these calculations, however, we can use

the concept of the optimal tariff.
 The tariff that leads to the maximum increase in welfare for the
importing country.
 We have shown that for a small tariff, a large country can

gain. But if the tariff is too large, the country will still lose.
 Figure 8.8 graphs Home welfare against the level of the tariff.

APPLICATION The Optimal tariff maximizes

the Importer’s welfare, Point C
Figure 8.8 Too high of a tariff will decrease
Importer’s
Terms of trade gain importer’s welfare and can
exceeds deadweight
Welfare loss increase to the point where
there is no trade
C Terms of trade gain is
less than deadweight
loss
B'
Free Trade
B
A
No Trade
Optimal Prohibitive Tariff

Tariff Tariff

APPLICATION
• Optimal Tariff Formula

 The optimal tariff depends on the elasticity of Foreign
export supply, EX*.
• Optimal Tariff Formula

Optimal Tariff = 1/EX*.
 For a small importing country, the elasticity of Foreign
export supply is infinite, and so the optimal tariff is zero.
 As the elasticity of Foreign export supply decreases,
Foreign export supply curve is steeper, the optimal tariff
is higher.

APPLICATION
• Optimal Tariffs for Steel
 If we apply this formula to the U.S. steel tariffs, we can
see how the tariffs applied compare to the theoretical
optimal tariff.
 Table 8.2 shows various steel products along with their
respective elasticities of export supply to the U.S.
 We can compare the actual tariff to the optimal tariff to
see where there were gains and where there were
losses from the tariffs.
 But what about retaliation?...

APPLICATION
Table 8.2

Import Quotas
• On January 1, 2005, China was poised to become

the world’s largest exporter of textiles and
apparel.
 On that date, the Multifibre Arrangement (MFA) was
abolished.
 Under the MFA, import quotas restricted the amount of
nearly every textile and apparel product that was
imported to Canada, Europe, and the U.S.
 The quotas were to protect their own domestic firms
producing those products.
 The threat of import competition from China led the
U.S. and Europe to negotiate new quotas with China.

Import Quotas
• Import Quota in a Small Country

 Suppose the import quota of M2<M1 is imposed.
 This essentially gives us a horizontal supply curve, X in

panel b (at prices above PW).
 Fixes the import quantity at M2, price rises to P2.
 Qty supplied rises to S2 and qty demanded falls to D2.
 For every level of import quota, there is an equivalent

import tariff
 Has the same price and quantity effects as the quota.
 The equivalent tariff is: t = P2 – PW

Import Quotas
Figure 8.9 Consumers
WithAt
The new
the
loseshigher
theQuota,
new
Export surplus
Supply
the Foreign
of (a+b+c+d),
price
curve Pexport
2,
Always
producers have
gaina deadweight
(a). increases
(with quota) Home
crosses
supply theSupply
Import
becomes Demand
vertical
loss of (b+d) like the tariffat the
to quota
curve at
No-trade S2,price
aquantity
new
Welfare Demand
of Home decreases
and depends
quantity of towhat
onimports
equilibrium D2 and
happens imports
to (c), fall to
the total M2 rents.
quota
S
Price Price
A
b d
C
b+d
P2
a c c Foreign export
B supply, X*
PW
Home import
D demand, M
(a) Home market (b) Import market

Import Quotas
• There are four possible ways these rents can be
allocated.
1. Giving the Quota to Home Firms:
 Quota licenses can be given to Home firms
 Permits to import the quantity allowed under the quota system.
 The net effects on Home welfare due to the quota are then as
follows:
Quota rents earned at Home +c
Net effect on Home welfare: -(b+d)
 This is the same loss we saw with a tariff.
 (b+d) is still a deadweight loss associated with the quota.

Import Quotas
2. Rent Seeking
 Because of the gains associated with owning a quota
license, firms have an incentive to engage in
inefficient activities in order to obtain them.
 How licenses are allocated matters.

a. If licenses are allocated in proportion to each firm’s
production, Home firms will likely produce more than they
can sell just to obtain the import licenses for the following
year.
b. Firms might engage in bribery or other lobbying activities to
obtain the licenses.

Import Quotas
 Some suggest that the waste of resources devoted to
rent seeking could be as large as the value of the rents
themselves, c.
 If rent seeking occurs, welfare loss of quota is:

Net effect on Home welfare: -(b+c+d)
 This loss is larger than a tariff.
 It is thought rent seeking is worse in developing

countries.

Import Quotas
3. Auctioning the Quota

 The government of the importing country to auction
off the quota licenses.
 In a well-organized, competitive auction, the revenue

collected should exactly equal the value of the rents.
Auction revenue earned at Home +c
Net effect on Home welfare: -(b+d)
 This is the same loss as the tariff.

Auctioning Import Quotas in
Australia and New Zealand
APPLICATION
• During the 1980s, Australia and New Zealand

both auctioned the quota licenses to import
specific goods.
• Table 8.3 shows the value of imports covered by
quotas curing 1981–1987.
• In 1988, New Zealand announced plans to phase
out import quotas as part of a liberalization of
trade, and all quota licenses were eliminated by
1992.

APPLICATION
• Table 8.3 also shows the value of bids for the

quota licenses.
 These are estimates of rents.
• If we take the ratio of the value of bids to the

value of imports covered by the quota, we obtain
an estimate of the tariff equivalent to the quota.
 These are shown in the final column of table 8.3
• Since there was no penalty from not following

through, some firms decided not to purchase the
licenses after all.
APPLICATION
Table 8.3

APPLICATION
• The government therefore did not collect all the

winning bids as revenue.
• For those that did buy their licenses, they could

be resold and some were at much higher prices.
• This makes it appear that the government was not

collecting all of the rents in area c.

Import Quotas
4. “Voluntary” Export Restraint

 The importing country can give authority for
implementing the quota to the exporting government.
 This is often called a “voluntary” export restraint (VER)

or a “voluntary” restraint agreement (VRA).
 In the 1980s the U.S. used this type of arrangement to

restrict imports of Japanese automobiles.
 The Japanese government told each Japanese firm how much
it could export to the U.S.

Import Quotas
• With VERs, quota rents are earned by foreign

producers, making Home welfare:
Net effect on Home welfare: -(b+c+d)
• This is a higher net loss than with a tariff.

• Why would an importing country do this?
 It is typically political—the exporting country is less
likely to retaliate since they gain the area c.
 This can often avoid a tariff or quota war.

Import Quotas
• Costs of Import Quotas in the U.S.
 Table 8.4 presents some estimates of Home
deadweight losses and quota rents for some major U.S.
quotas in the 1980’s.
 In all cases except Dairy, the rents were earned by
Foreign exporters.
 Adding up the costs in the table, the total U.S.
deadweight loss due to these quotas ranged from $8–
$12 billion annually.
 Quota rents transferred another $7–$17 billion to
foreigners.
 Some, but not all, of these costs are relevant today
since many of the quotas are no longer in place.

Import Quotas
Table 8.4

China and the Multifibre Arrangement
APPLICATION
• One of the principles of GATT was that countries should
not use quotas to restrict imports.
• The MFA was a major exception to that which allowed the
industrialized countries to restrict imports of textile and
apparel products from the developing countries.
• Organized under GATT, importing countries could join the
MFA and arrange quotas bilaterally or unilaterally.
• Under the Uruguay round of WTO, developing countries
were able to negotiate an end to this system of import
quotas.
• Some developing countries and large producers in
importing countries were concerned with the potential of
Chinese exports on their economies.

APPLICATION
• Growth in Exports from China
 Immediately after January 1, 2005, exports of textiles
and apparel from China grew rapidly.
 In 2005, China’s textile and apparel imports to the U.S.
rose by more than 40% compared to 2004.
 Figure 8.10 (a) shows the change in the value of
exports of textiles and apparel from different countries.
Note China.
 The increases from China came at the expense of
some higher-cost exporters, some of whose exports to
the U.S. declined by 10 to 20%.

APPLICATION
Figure 8.10

APPLICATION
• Panel (b) of figure 8.10 shows the percentage
change in the prices of textiles and apparel
products from each country, depending on
whether the products were subject to the MFA
quota before January 1, 2005, or not.
• China had the largest drop in the prices from 2004
to 2005.
• Many other countries had a substantial fall in their
prices due to the end of the MFA quota.

APPLICATION
Figure 8.10

APPLICATION
• Welfare Cost of the MFA
 Given the drop in prices in 2005, it is possible to
estimate the welfare loss due to the MFA.
 Using the price drops from figure 8.10, the welfare loss
for the U.S. (b+c+d), is estimated at $6.5 to $16.2
billion in 2005 from the MFA.
 Averaging out all losses and dividing among

households gives an estimate of $100 per household,
or 7% of total annual spending on apparel.

APPLICATION
• Import Quality
 Quotas are set on the quantity, not the quality of items imported.
 Selling a higher value good for the same quantity will still meet the
quota limit but will bring more money back home.
 Incentive to export higher quality products.
 Prices dropped the most for the lower- priced items.

 An inexpensive T-shirt had a greater drop in price than a more
expensively priced item.
 U.S. demand shifted towards the lower-priced items imported from

China: there was “quality downgrading” in the exports from China.
 When a quota like the MFA is applied, there is an effect on quality.

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8 1

A Brief History of the

• During the 2000 presidential campaign, President

• This was a political move to secure votes in large

• The steel tariff is an example of a trade policy—a

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• Consumer and Producer Surplus

 Part (b) of figure 8.1 illustrates producer surplus.

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Figure 8.1 (a) Adding up all curve

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Figure 8.1 (b)

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• Free Trade for a Small Country

 The world price PW is determined by the supply and

 Suppose Home is a small country.

 Assume PW is below the Home no-trade price PA.

 At the lower price, Home will be an importer of the

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S At lower world price,

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• Home Import Demand Curve

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• Free Trade for a Small Country

• Effect of the Tariff

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• Effect of the Tariff on Consumer Surplus

 The fall in consumer surplus due to the tariff is the area

 This area is the amount that consumers lose due to the

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• Effect of the Tariff on Producer Surplus

 Since the tariff increases Home price, firms can sell

 This area, a in figure 8.5 (a.2), is the amount that Home

 Increases in producer surplus can benefit Home

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• Effect of the Tariff on Government Revenue

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• The areas b and d in figure 8.5 (a) correspond to the

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b d c is a transfer from consumers

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 A second reason is politics.

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 Deadweight loss then equals DWL = ½ t ΔM.

 It is convenient to measure the deadweight loss relative to the

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Price Figure 8.5 (b) We can measure DWL

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• This leads to a DWL of

• The value of steel imports affected by the tariff

• The dollar magnitude of deadweight loss is equal to $185

• Under the small country assumption that we have