Common Trade Restrictions- Tariffs – tax on transaction
- Specific tariffs
- Ad valorem tariffs
- Revenue vs. Prohibitive Tariffs
- Quotas
- Loan Subsidies
- Domestic Content Limits
- Unique product/process regulations
Effects of trade restrictions- inefficient welfare programs for the domestic producers
- Consumers
- Suffer & pay
- Costs spread-out
- Politically quiet
- Producers
- Large & focused benefits
- Political “horse-trading” & lobbying
Quotas in Practice- Producers lobby Congress for quotas
- Reward domestic producers with higher prices
- Reward foreign producers with the right to sell goods in US
- Lack of opposition from consumers
Tarriffs vs. Quotas- Tariff and quotas
- identical effects on price
- same change in quantity demanded
- U.S. consumers suffer loss of consumer surplus
- U.S. producers gain
- Who gets the additional revenue?
- Tariff: government
- Quota: producer w/ rights
Other Trade Restrictions - Export Subsidies
- Low-interest loans
- Domestic Content Limits
- Unique industry/product regulations
- Health
- Safety
- technical standards may discriminate against foreign goods
Free-trade & Agreements- Free Trade Zones
- European Union
- Bilaterals
- Agreements
- GATT & WTO
- NAFTA
- Paris Convention
- FTAA
- CAFTA
Rhetoric & Trade- Supporters of Protectionism:
- Rarely say so
- “Fair” Trade
- “Competitiveness”
- Much so-called “Free Trade” isn’t
Additional Problems with Trade Restrictions- Often requires protecting downstream stages of production
- Wasted resources seeking favored protections
- Other countries often retaliate,
- reducing gains from trade
- Costs of enforcment
- Social & Political Risks