Question

In 2009 tariffs were imposed on Chinese tires. The result of this tariff was a drop in imports of these tires from $13 million to $5.6 million tires in one quarter. Additionally, within one year, the average radial tire prices rose by $8 per tire (in the United States): the average price of Chinese tires rose from $30.79 to $37.98, while the average price of tires from all other nations rose from $53.94 to $62.02. a) Who were the winners and losers domestically from this tire tariff? b) Who were the winners and losers of this tire tariff overseas? c) Explain measures/strategies you would adopt to re-balance trade d) Illustrate with graph the domestic market before and after tariffs.

Answer 1

(a) In the domestic market, domestic producers are the winners as they can supply more and have more share in economic surplus. Consumers are the losers as the prices have gone up due to tariffs imposition.

(b) Exporters or producers from countries other than China are the gainers from tariffs as they can supply more goods. China is the loser from the tariff as its share of market decreases.

(c) The government can provide subsidies to domestic producers instead of imposing tariffs on Chinese products.

(d)

Imports= AA'

Imports after tariff= BB'

Price increases from P to P' and Imports fall from AA' to BB'.