Economics Dictionary of ArgumentsHome
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| Tariffs: Tariffs are taxes imposed by a government on imported goods. They are used to raise revenue or protect domestic industries by making foreign products more expensive. Tariffs can influence trade balances, consumer prices, and international relations. While they may benefit local producers, they often lead to higher prices for consumers and potential retaliation from trading partners. See also International relations, Taxation, International trade._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Robert C. Feenstra on Tariffs - Dictionary of Arguments
Feenstra I 7-1 Tariffs/Feenstra: There are various reasons why countries use import tariffs and other types of trade policies. Nearly all countries have used these instruments in early stages of their development to foster the growth of domestic industries, in what is called import substitution. Such policies have been heavily criticized for protecting inefficient domestic industries from international competition. Many countries have later switched to an export promotion regime, under which industries are expected to meet international competition through exports, albeit with subsidies (hopefully temporary) given to exporters. The more than 140 members of the WTO have all committed to abandon such heavily regulated trade regimes, and move towards substantially freer trade. One question, then, is whether the use of import tariffs and other trade policies at early stages of the development process has any rationale at all, especially when other markets (such as for capital) might not be functioning well. A second question concerns the welfare cost of tariffs and quotas in situations where other markets are working well. Even under the GATT/WTO, countries are permitted to apply tariffs in a number of cases, including: (i) “escape clause” tariffs, under which countries temporarily escape from their promise to keep tariffs low, due to injury in an import-competing industry; (ii) antidumping duties, under which tariffs are applied to offset import prices that are “too low.” For theoretical purposes, we can think of escape clause tariffs as exogenously imposed on exporting firm (…). >Dumping. Feenstra I 8-60 Tariffs/Feenstra: (…) we identified three effects of a tariff on welfare: (i) a deadweight loss; (ii) a terms of trade effect; (iii) a reduction in the monopoly distortion if the output of home firms increase (without leading to inefficient entry). While we have not derived again the welfare criterion for an import quota, a similar decomposition would apply. >Import quotas. However, any potential terms of trade gain becomes a loss if the importing country gives up the quota rents to the exporter, as under a VER [Voluntary Export Restraints]. >Voluntary Export Restraints (VER). In that case, the only possible source of gain for the importing country would be under effect (iii), if the import quota led to a significant increase in home output and offset a monopoly distortion. But we have found that the reverse case is more likely to hold: with either a home monopoly or Bertrand duopoly, the quota (say, at the free trade level of imports) will lead to an increase in price and reduction in home quantity, so that the monopoly distortion is worsened rather than offset. >Bertrand competition, >Monopolies. For export subsidies under perfect competition, the welfare criterion becomes: (i) a deadweight loss; (ii) a terms of trade effect. Whereas the terms of trade will improve due to a tariff for a large country, it will instead worsen due to the export subsidy in a two-good model. Feenstra I 8-61 (…) with more goods there is the possibility that a subsidy on some goods will raise the terms of trade for others. The Ricardian model with a continuum of goods provides a good illustration of this, and allowed for welfare-improving export subsidies when they are targeted on a narrow range of goods. Imperfect competition: Under imperfect competition, the welfare criterion is simplified by considering sales to a third market. In that case the home firm earns profits from its export sales, and welfare is simply the difference between these and the revenue cost of the subsidy. This provides the clearest example of a potential role for “strategic” trade policy in shifting profits towards the home firm. Subsidies: (…) subsidies may or may not be desirable: under Cournot competition export subsidies raise welfare, but under Bertrand competition they do not. >Cournot competition, >Bertrand competition. Since it is very difficult to know the type of competition being used by firms, it becomes impossible for the government to implement this policy in a welfare-improving manner. Empirically, the analysis of import quotas and export subsidies are linked because the industries involved are often producing discrete products, with multi-product firms. (…) [there are] empirical techniques that can be used on such industries, including hedonic regressions and the estimation of demand and prices as in Berry (1994)(1). 1. Berry, Steven T., 1994, “Estimating Discrete-Choice Models of Product Differentiation,” Rand Journal of Economics, 25(2), Summer, 242-6._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Feenstra I Robert C. Feenstra Advanced International Trade University of California, Davis and National Bureau of Economic Research 2002 |
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