International Economics: Analysis of Tariffs and Trade Protectionism

This report analyzes the impact of tariffs in international economics, specifically focusing on the US-China trade war. It examines the effects of tariffs on both consumer and producer surplus, illustrating how tariffs can protect domestic industries while also potentially leading to welfare losses and trade ...Read More

Running head: INTERNATIONAL ECONOMICS
International economics
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Link to the article: https://www.cnbc.com/2018/08/01/us-china-trade-war-trump-to-propose-
25percent-tariff-on-chinese-imports.html
Description of the article
The above article states that a tariff have been imposed on the Chinese goods of worth
$200 billion which have increased from 10 percent to 25 percent. There had been trade war
between us and China for a long time. . Although initially, the tariff had been ten percent.
The tariff have been imposed especially on steel and on soybeans (CNBC. 2019). The
Chinese government although did not take any immediate actions against the government of
the United States. The tariff that is imposed by the USA can be advantageous to the domestic
steel producers since it will be helping them to increase their production. The trade
protectionism will be having a negative effect on the exporting countries. The trade
protectionism is known to be the type of policy which is known to limit the unfair
competition. However, it will be destructive in the case of the long term. Tariffs are known to
make the country as well as the industries less competitive in international trade.

Q1 Q4 Q Q3 Q2
P2
S
D
Quantity
P1
P
1 2 43
World supply + tariff
25%
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Figure 1 Effects of Tariff
When the United States of America is known to impose 10 percent tariff on the
Chinese goods, the price of the goods rises. In this case P1 is the initial price which the
Chinese producers in this case China is producing steel at the world market price P1 where it
is the initial world supply. After the imposition of tax the price have known to rise to P2 and
the new output will be at Q3. After the imposition of tariff, the imports fall to Q4 to Q3. The
domestic producers have known to protect from the cheaper imports from the rest of the
World. As a result of tariff, the domestic consumers are known to face higher prices and they
are known to suffer a loss of consumer surplus. The domestic producers are also known to
increase their producer surplus since they receive higher price. However, it have been found
out that the reduction in the consumer surplus have been greater than the rise in the producer
surplus. The tariff revenue is 1+2. The net welfare loss is 3 and 4. The welfare loss also
termed as excess burden is a loss of economic efficiency which takes place when equilibrium
for a good or service is not achieved.
The trade protectionism will be having negative effect on the exporting countries. The
trade protectionism is known to be the type of policy which is known to limit the unfair
competition. However, it will be destructive in case of long term. Tariffs are known to make

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the country as well as the industries less competitive in international trade. The paper have
stated that Trump have imposed twenty five percent tariff on worth of $200 billion of
imported goods from China (CNBC. 2019). The Chinese government although did not take
any immediate actions against the government of the United States. There will be a potential
distortion of the principle of the comparative advantage where the tariff is known to alter the
cost advantage which the countries have known to build up with the help of specialization.
The decrease in the consumer surplus is known to be much greater than the rise in the
producer surplus.
Tariffs are mainly imposed for protecting the domestic employment, protecting
consumers, infant industries and for normal security. Government might levy tariff on the
products when he feels that it can endanger its population. Tariffs are also imposed for
protecting the domestic companies. Tariffs are also used for protecting the infant industries
which many developing countries are known to employ. It also decreases the rate of
unemployment and allows the developing countries to shift from agricultural products to the
finished goods (CNBC. 2019).Tariffs are also imposed by the developed countries for
protecting certain industries which are known to be strategically important in nature.
Consumers of the exporting countries are known to experience a rise in the well being as a
result of tariff. The reduction in the domestic price are known to raise the amount of
consumer surplus in the market. The producers on the other hand, experiences a decrease in
the well being due to the imposition of tariff. The decline in price, also known to lead to
decrease in output, employment and a decrease in profit.

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The consumers of the product in the importing country known to suffer a reduction in
the well being due to tariff and lead to increase in the domestic price of both the domestic
goods along with domestic substitutes.
Conclusion
The tariff that is imposed by the USA can be advantageous to the domestic steel
producers since it will be helping them to increase their production. The tariff revenue which
is collected by the government is the amount of tariff multiplied with the quantity of imports.
When there will be imposition of tariff, it can trigger to a costly trade war between the
exporting and the importing countries. In case of short run, tariffs are known to protect jobs
and will be declining the production of strategic goods. In case, when the tariffs will be
selective in nature, it will be reducing the trade deficit and will be reducing consumption. The
tariffs are therefore the tax which is known to be placed by the government on the imports
which will be increasing the price for the consumers.

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Reference list
CNBC. (2019). Trump is said to plan proposal of 25% tariff on China imports worth $200
billion. [online] Available at: https://www.cnbc.com/2018/08/01/us-china-trade-war-trump-
to-propose-25percent-tariff-on-chinese-imports.html [Accessed 6 Mar. 2019].