Question

Analyse how imported tariff by US on imported steel , almiuum and ather product from chine affected china and DOMESTIC INDUSTRIES

Answer 1

Given Information-

US is an importing country and China is an exporting country. US has imposed imported tariff on items that China exports to US.

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US market

The figure (1) below depicts US market. Since, China was acting as an exporter to US. It is assumed that China has comparative advantage and hence price in China, [P (China)] is less than that of price in US, [P(US)].

Before imposition of import tariff

At P(China), supply and demand in US market is equal to Q1 and Q2 units respectively. The excess demand Q1Q2 units is met by imports from China.

After imposition of import tariff

When US imposes import tariff on the goods imported from China. Then the domestic price in China market rises by the amount of tariff t. Thus, at new price P + t (China), supply in US market increases to Q3 units. And the demand in US market falls to Q4 units.

Now, since, US market has started supplying more Q1Q3 units. And the demand is decreased by Q4Q2 units. Thus, the imports from China also declines to Q3Q4 units in the US market.

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China Market

The figure (2) below depicts the effect of decline in US imports from China on the Chinese market.

Here the initial equilibrium is at point A at which Chinese demand [D(China)] and supply [S(China)] curves intersect. The initial equilibrium quantity and price is equal to Q and P respectively.

Now when US reduces its import demand from China, the D(China) curve shifts leftward to

D” (China). As a result, at new equilibrium point B, the equilibrium quantity and the equilibrium price in China falls to Q” units and P” respectively.

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Affect of import tariff on China

Due to the imposition of import tariff by US, the demand for Chinese exports declined. As a result, the aggregate demand in China falls. This fall in aggregate demand may affect GDP of China negatively.

Affect of import tariff on Chinese Domestic Producers

Due to fall in Chinese aggregate demand, the equilibrium price in the Chinese market declines. As a result, the producer surplus of the domestic producers falls from area PAC to area P”BC as depicted in the figure (2).