Question

A tariff raises relative supply of a country’s import good while lowering relative demand. Discuss what would happen if all China enacted a 10% tariff on US vehicles sold in China? What would you assume would be the affect on US sales of cars in China?

Answer 1

If China enacted a 10% tariff on all US vehicles sold in China, then price of US imported goods in China will increase and would become relatively expensive than Chinese vehicles.

Consumers will prefer buying cheaper Chinese vehicles over expensive US imported vehicles.

As a result, demand for US made vehicles would drop drastically while that of Chinese vehicles would increase.

As a result, producers of US vehicles would experience losses from lower sales, while producers of Chinese vehicles would experience gains from higher sales.