Question

Draw Draw a three-graph figure similar to Figure 9.4 in chapter 9 notes and explain the effects of a Chinese tariff on U.S. exports of soybeans to China. Assume that the United States and China are large countries. Do a welfare analysis and explain the effects of the tariff in the U.S. soybean market, do a welfare analysis and explain the effects of tariff in the Chinese market, and explain the effects of the tariff in the international market. Explain the costs and benefits of the tariff in the United States and in China. Make sure to discuss the appropriate details. You can draw the graphs by hand and paste them here.

Answer 1

Above figures show the impact of Tariff on US and China. China is the importing country and US is the exporting country. Initially, the free trade price is Pf. Due to tariff, price increased from Pf to Pt in both countries. As a result, consumers in Chinese market will worse-off as they now have to pay higher price for same goods.

Producers in China are better off with tariffs as they are able to sold the goods at higher trade prices. China Government Revenue will also increase.

Consumers of US are better off whereas the producers of US are worse-off as they face competition from Chinese market.

WELFARE EFFECT:

	China	US
Consumer Surplus	-(A+B+C+D)	+q
Producer Surplus	+A	-(q+r+s+t)
Government Revenue	+(C+G)	0
National Welfare	G - (B+D)	-(r+s+t)

So, due to tariff, welfare in US market will reduce

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