Question

Suppose computers are imported into the US from Japan and face a tariff of $75 each. Assume the market for computers is competitive and the world price of a computer is $750. Suppose also that parts required to assemble computers can also be imported from abroad, are valued at $450, and face no tariffs when imported into the US. What is the effective rate of protection provided to US assemblers/ sellers of computers by the tariff schedule for computers?

Answer 1

There's a 10% tarrif on computers and no tarrif on unassembled parts.

Without protection: If 10% tarrif was imposed on computer parts, the domestic price of computers would be 825 and the cost of computers parts would be 495. US assemblers would operate at a value added margin of (825-495) 330 dollars.

Without protection, the domestic cost of computers would remain the same but the cost of unassembled parts would be 450. The value added margin is 375.

The difference in margin is 375-330=45

So the effective rate of protection= (45/330)*100 = 13.64%