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Chapter 8: Analysis of a Tariff

Chapter 8: Analysis of a Tariff. 8.1 Introduction. Chapter Objective To understand the effects of import tariffs on the imposing country and the world. Contents. Purposes for imposing a tariff Types of Tariffs Ways to measure tariff levels Effects of a tariff on a small country

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Chapter 8: Analysis of a Tariff

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  1. Chapter 8: Analysis of a Tariff

  2. 8.1 Introduction • Chapter Objective • To understand the effects of import tariffs on the imposing country and the world.

  3. Contents • Purposes for imposing a tariff • Types of Tariffs • Ways to measure tariff levels • Effects of a tariff on a small country • Effects of a tariff on a large country

  4. 8.2 The Evolvement of Tariffs • What is a tariff ? • The origin of tariffs: Tarifs • The Evolvement of Tariffs

  5. 8.3 Why would a Country Impose a Tariff? • Discourage consumption • Generate revenue • Reduce deficit in the balance of payment • Protect domestic industries

  6. 8.4 Types of Tariffs • Specific Tariffs 从量税 • Ad Valorem Tariffs 从价税

  7. Import Tariffs • MFN rates • Ordinary rates • Export Tariffs • Transit Duties 过境税

  8. Import Surtaxes • General Import Surtaxes • Specific Import Surtaxes • Anti-dumping Duties 反倾销税 • Countervailing Duties 反补贴税

  9. Variable Levy 差价税 Common Agricultural Policy 共同农业政策 Target PriceThreshold Price Variable Levy = Threshold Price - CIF Price

  10. Preferential duties Lomé Convention 1975 洛美协定 ASEAN 东盟

  11. Generalized System of Preferences普遍优惠制 • History UNCTAD 联合国贸发会议 • 1964 Geneva • 1968 New Delhi • The Group of 77

  12. Preferences and Coverage • Recipient Countries • Products Covered • Magnitude of Preference

  13. GSP and China

  14. 8.5 Customs Tariff and Commodity Classification • Customs Tariff 海关税则 • Tariff No. • Description of Goods • Rate of Duty

  15. Commodity Classification • Customs Cooperation Council Nomenclature （CCCN） 海关合作理事会税则商品目录 • Standard International Trade Classification 国际贸易标准分类 （SITIC） • Harmonized Commodity Description and Coding System （ HS ） 商品列名与编码协调制度

  16. 第76章 铝及其制品 7601 未锻轧铝 7601.1000 非合金铝 7601.2000 铝合金 7602 废铝碎料 7602.0000 废铝碎料 7603 铝粉及片状粉末 7603.1000 非片状粉末 7603.2000 片状粉末

  17. 8.6 Ways to Measure Tariff Level • simple average 简单平均 • weighted average 加权平均

  18. 8.7 What Happens When a Small Country Imposes an Import Tariff?

  19. Consumer Surplus 消费者剩余 PY Consumer Surplus P0 Expenditure D O Y0 Y

  20. Producer Surplus 生产者剩余 PY Producer Surplus S P0 Costs O Y0 Y

  21. PY Sd H E P0 V G P1+t SW+t a b c d P1 SW Z F Dd O Y2 Y4 Y0 Y3 Y1 Y

  22. Loss in Consumer Surplus: a + b + c + d a : Redistribution Effect c : Revenue Effect b : Production Effect A deadweight loss from inefficient domestic production d : Consumption Effect A deadweight loss from higher price and lower consumption volume b+d : Total deadweight losses

  23. 8.8 What Happens When a Large Country Imposes an Import Tariff?

  24. PY Sd Sd+W+t b t Sd+W d P1 a c P0 P2 e Dd O Y1 Y3 Y2 Y0 Y

  25. a , b, c, d The same as in the small country case. e : terms-of-trade effect Tariff revenue from the exporting country

  26. Net Welfare effect If e>b+d, domestic welfare If e<b+d, domestic welfare In any case, world welfare

  27. Nationally Optimal Tariff • Nationally Optimal Tariff t*=1/Sm Sm: Price elasticity of foreign export supply curve

  28. Nationally Optimal Tariff • Beggar-thy-neighbor policy • Tariff war

  29. 8.9 The Effective Rate of Protection Under free trade Domestic Value-added (V) V0 = Pf – Pi f : imported finished product i : imported inputs

  30. V0 = Pf – Pi Under tariff protection V1 = Pf (1+tf) – Pi (1+ti) If V1 > V0 , Protection is effective. ERP = --------- = ------------ a= Pi / Pf V1 - V0 tf – ati V0 1- a

  31. ERP and Tariff Structure Suppose Country A imports X, Pf =20, Pi =15, a=3/4,. • If tf=10% ,ti=0%; ERP=40%. • If tf=10% ,ti=10%; ERP=10%. • If tf=10% ,ti=20%; ERP=-20%.

  32. ERP and Tariff Structure If tf > ti , ERP> tf . If tf = ti , ERP= tf = ti . If tf < ti , ERP< tf .

  33. Summary • Effects of import tariffs • Small country • Large country • Effective rate of protection

  34. World Trade Organization (WTO) • Oversees the global rules for government policies toward international trade. More than 150 member countries. Established 1995. • Succeeds and subsumes the General Agreement on Tariffs and Trade (“interim” agreement, 1947). • Principles: • Reductions of barriers to trade • Nondiscrimination among countries, often called the most favored nation (MFN) principle • No unfair encouragement for exports

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