PARTⅡTrade theory ch811.docx

PARTⅡTrade theory ch811.docx

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PARTⅡTradetheorych811

Chapter8

TheInstrumentsofTradePolicy

*Theinstrumentoftradepolicyandtheirobjective.

Instrument:

（1）tariff

（2）nontariffbarriers:

exportsubsidies、importquotas、voluntaryexportrestraints、localcontentrequirements……

Objective:

toprotectparticulardomesticsectors.

*Thischapterfocuseson:

theeffectsofthemostimportantinstrumentsoftradepolicy─costsandbenefitsanalysis

§1.Basictariffanalysis

Specifictariff:

afixedchargeforeachunitofgoodsimported.

advaloremtariff:

afractionofthevalueoftheimportedgoods.

1.Supply,demand,andtradeinasingleindustry

·ToderiveanddecideMDorXSinasinglecountry:

MD=D−SXS=S*−D*

Figure8-1DerivingHome’sImportDemandCurve

·Todeterminetheworldpriceandthetradedquantity:

worlddemand=worldsupplyor∑D=∑Sor∑MD=∑XS

D+D*=S+S*

Figure8-3WorldEquilibrium

2.Effectsoftariff

·AtariffraisethepriceinHomewhilelowerthepriceinForeign,PT=PT*+t.

ATariffinaLargeCountry

·Thesizeofthiseffectontheworldpriceisoftenverysmall.For“smallcountry”,PT=PW+t.

ATariffinaSmallCountry

3.Measuringtheamountofprotection

·Tariffsmayhaveverydifferenteffectsondifferentstagesofproductionofagood.

·Nominaltariffmaynotreflecttheeffectiverateofprotection.

ERP=（VT−VW）/VW

VT:

valueaddedinthepresenceoftradepolicies

VW:

valueaddedatworldprice

E.g.X2andX3aretheinputsofX1,theinput─outputcoefficienta21=0.2,a31=0.3.Ift1=50%、t2=40%、t3=10%.HowmuchistheERPofX1?

VW=（1–0.2–0.3）=0.5VT={[（1+0.5）–0.2×（1+0.4）–0.3×（1+0.1）]–（1–0.2–0.3）}=0.89

ERP=（VT−VW）/VW=（0.89–0.5）/0.5=58%

§2.Costsandbenefitsofatariff

1.Consumerandproducersurplus

·Consumersurplusisequaltotheareaunderthedemandcurveandabovetheprice.

·Producersurplusisequaltotheareaabovethesupplycurveandbelowtheprice.

Figure8-7Figure8-8

2.Measuringthecostsandbenefits

Figure8-9CostsandBenefitsofaTarifffortheImportingCountry

consumersurplus:

–（a+b+c+d）

producersurplus:

+a

governmentrevenue:

+（c+e）

nationalwelfare:

e–（b+d）

e:

termsoftradegain

b+d:

efficiencyloss（b:

productiondistortionloss;d:

consumptiondistortionloss）

·HowmuchdoesPWdecrease？

Itdependson:

“smallcountry”:

PW,T=PW,e=0;eXS,eMD

·Home’sgainfromtermsoftradeisattheexpenseofForeign’s“beggartheneighbour”

Thecostsandbenefitsanalysisabovearecorrectifonly:

（1）Thedirectgainstoproducersandconsumersinagivenmarketaccuratelymeasurethesocialgains.（withoutmarketfailure）

（2）Adollar’sworthofbenefitstoeachgroupisthesame.

§3.Otherinstrumentsoftradepolicy

1.Exportsubsidies:

Theory

·Whenthegovernmentoffersanexportsubsidy,shipperswillexportthegooduptothepointwherethedomesticpriceexceedstheforeignpricebytheamountofthesubsidy,PS=PS*+S

·Anexportsubsidyraisespriceinexportingcountrywhileloweringtheminimportingcountry.

Figure8-11EffectsofanExportSubsidy

·consumersurplus:

–（a+b）··nationalwelfare:

–（b+d+e+f+g）

·producersurplus:

+（a+b+c）–（b+d）:

consumptionandproductiondistortionlosses

·governmentsubsidy:

–（b+c+d+e+f+g）（e+f+g）:

termoftradeloss

Casestudy:

Europe’scommonagriculturepolicy

·AgriculturalpricesarefixednotonlyaboveworldmarketlevelsbutabovethepricethatcleartheEuropeanmarket.Aexportsubsidyisusedtodisposeoftheresultingsurplus.

Figure8-12Europe’sCommonAgriculturalProgram

·Thereasonstosubsidy:

economicsifscale;economicgrowthandemployment;strategy

2.ImportQuotas:

Theory

·Animportquotawillraisedomesticpricebythesameamountasatariffthatlimitsimportstothesamelevel.

AQuotainaSmallCountry

AQuotainaLargeCountry

·Thedifferencebetweenaquotaandatariffisthataquotathegovernmentreceivesnorevenue.Themethodtoallocatethequotadetermineswhogetsthequotarents.Thesemethodsare:

a.competitiveauction

b.allocatetosomebodyfirmly

c.orderlyapplicationofusingresources

·Inassessingthecostsandbenefitsofanimportquota,itiscrucialtodeterminewhogetstherents.

CASESTUDY:

AnImportQuotainPractice:

U.S.Suager（P190-191）

3.VoluntaryExportRestraints

·AVERisaquotaimposesfromtheexportingcountry’ssideinsteadoftheimporter’s.

·AVERisexactlylikeanimportquotawhichthelicenseareassignedtoforeigngovernment.

·VERSaremuchmorecostlythantariffs.

ImportquotasandVERSaremuchmorestrictthantariff,becausetheexportercan’tincreasethequantityofexportinggoodseveniftheyhavegreatadvantagesinpriceandquality.

4.LocalContentRequirement

·Localcontentrequirement:

Specifiedfractionofafinalgoodmustbeproduceddomestically.

·Localcontentlawshavebeenwidelyusedbydevelopingcountriestryingtoshifttheirmanufacturingfromassemblybackintointermediategoods.

·Fromthepointofviewofthedomesticproducersofparts,itprovidesprotectioninthesamewayanimportantquotadoes.

·Fromthepointofviewofthefirmsthatmustbuylocally,theeffectivepriceofinputsisanaverageofthepriceofimportedanddomesticallyproducedinputs.

·Alocalcontentrequirementproducesneithergovernmentrevenuenorquotarents.Thefinalpriceispassedontotheconsumers.

5.OtherTradepolicyinstruments

·Exportcreditsubsidies

·Nationalprocurement

·Red-tapebarriers

§4.Theeffectofatradepolicy:

ASummary

Table8-1EffectsofAlternativeTradePolicies

Tariff

Exportsubsidy

Importquota

VER

Producersurplus

Increases

Increases

Increases

Increases

Consumersurplus

Falls

Falls

Falls

Falls

Government

Increases

Falls

Nochange

Nochange

revenue

（government

（rentsto

（rentsto

spendingrises）

licenseholders

foreigners）

Overallnational

Ambiguous

Falls

Ambiguous

Falls

welfare

（fallsfor

（fallsfor

smallcountry）

smallcountry）

Chapter9

ThePoliticalEconomyofTradePolicy

*Whydocountriesperusetradepoliciessuchastarifforimportquota,whichproducemorecoststhanbenefits?

——tradepolitics.

*Thischapterfocuseson:

（1）Thecasefor/againstfreetrade

（2）Incomedistributionandtradepolicy

（3）Internationalnegotiationsandtradepolicy

§1.Thecaseforfreetrade

1.Freetradeandefficiency（“static’s”gains）

Amovetofreetradeeliminatestheproductionandconsumptiondistributioncausedbytradeprotectionandincreasenationalwelfare.（Table9-1）

2.Additionalgainsfromfreetrade（“dynamic”gains）

（1）Economiesofscale:

Freetradecandeterexcessiveentryandtheresultinginefficientscaleofproduction.

（2）Learningandinnovation:

Freetradeprovidesanincentivetoseeknewwaystoexportorcompetewithimports,offersmoreopportunitiesforlearningandinnovation.

3.Politicalargumentforfreetrade

Apoliticalcommitmenttofreetrademaybeagoodideainpracticeeventhoughtheremaybebetterpoliciesinprinciple:

Anygovernmentagencyattemptingtoperuseasophisticatedprogramofinterventionintradewouldprobablybecapturedbyinterestgroupsandconvertedintoadeviceforredistributionincometopoliticallyinfluentialgroups.

§2.Nationalwelfareargumentagainstfreetrade

Deviationsfromfreetradecansometimesincreasenationalwelfare.

1.Thetermsoftradeargumentforatariff

·Forasufficientlysmalltariffthetermsoftradegainoflargecountrymustoutweightheefficiencyloss.

Figure9A-2WelfareEffectsofaTariff

Gain–Loss=ut–vt2=–v（t–u/2v）2+u2/4v

Figure9-2TheOptimumTariff

Theoptimumtariffrate（to=u/2v）isalwayspositivebutlessthantheprohibitiverate（tp）:

0

·Thetermsoftradeargumentagainstfreetradeisintellectuallyimpeccablebutofdoubtfulusefulness.

for“smallcountry”:

Thereisnotermsoftradegains.

for“largecountry”:

AcycleofretaliatorytrademoveswouldunderminethecoordinationininternationaltradepolicysuchasWTO,etc.

2.Thedomesticmarketfailureargumentagainstfreetrade.

·Domesticmarketfailure:

duallabormarket;imperfectcapitalmarket;technologicalspillover,∙∙∙∙∙∙

·Technologicalspillovercaseforprotection

Iftheproductionofagoodyieldsexperiencethatimprovethetechnologyoftheeconomyasawholebutthefirmscan’tgetthisbenefit（themarketfailureofexternality）,asufficientlysmalltariffthatyieldsmarginalsocialbenefitmustoutweightheefficiencyloss.

Figure9-3TheDomesticMarketFailureArgumentforaTariff

TRADEPOLICY（tariff）:

P：

+（a+b）

C：

－（a+b+c+d）

MSB:

+e

N:

e-（b+d）

3.Howconvincingisthemarketfailureargument?

（1）·”Specificrule”:

domesticmarketfailureshouldbecorrectedbydomesticpoliciesaimeddirectlyattheproblem’ssources.

Ifthesameproductionincrease（S1toS2）wereachievedviaaproductionsubsidyratherthanatariff,theconsumptionlossbwillbeavoided.Figurer9-3.

·Tradepoliciesarealways“second-best”ratherthan“first-best”policies——eventhoughthecostofthetradepoliciesarelessapparent.

Mostdeviationsfromfreetradeareadoptednotbecausetheirbenefitexceedtheircostsbutbecausethepublicfailstounderstandtheirtruecosts.

（2）Economistscan’tdiagnosemarketfailurewellenoughtoprescribepolicy.

·Wagedifferentialscaseforprotection:

AtarifftoprotecturbanindustrialsectorsinLDCSwilldrawtheunemployedintoproductiveworkandthusgeneratesocialbenefitsthatmorethancompensateforitscost.

·However,thispolicywillencouragesomuchmigrationtourbanareasthatunemploymentwill,infact,increase.

·Thedifficultyofascertainingtherightsecond-