In 2017 the U.S. imported approximately $14.5 billion in household appliances from China, including about 21...

In 2017 the U.S. imported approximately $14.5 billion in household appliances from China, including about 21 million washing machines.

In January 2018, the U.S. placed a 20 percent tariff on imports of washing machines from China (technically, the tariff is 20% on the first 1.2 million units and 50% on any additional units). i) How does this tariff affect the price of Chinese-made washing machines in the U.S.? ii) Who does this hurt and why?
In 2017 the U.S. exported $20 billion in agricultural products to China, including $12.4 billion in soybeans. The Chinese government retaliated against U.S. tariffs by placing a 28 percent tariff on U.S. soybean exports. i) What affect does this tariff have in terms of U.S. exports of soybeans to China? Why? ii) Who does this hurt?

Expert Solution

1) The tariff imposed on Chinese washing machines increases its price. New price of washing machines in US will be P'=120P/100 =1.2P for first 1.2 million units. Above 1.2 million units, price becomes 1.5P.

As a result, imports falls.Let number of imports be imports be Q = 21 million initially and Q' is the number of units after tariff over 1.2 million units..

Then, 1.2P*1.2 + 1.5PQ' = PQ

or, 1.44P+1.5PQ'=PQ

or, 1.44+1.5Q'=21 million

or, Q'=(21-1.44)/1.5 = 13.04 million

Total imports = 13.04+1.2 million = 14.24 million washing machines.

As imports falls in US, exporting country China gets hurt as its export falls. This will lower net export of washing machines in China (21-14.24 = 6.76 million) . This will lead to lowering of China's GDP.

2) Now, with a tariff of 28% on US exports of soybeans to China , the new import of soybeans in China falls to (100-28)*12.4/100 = $8.9 billion. Thus, the export of soybeans from US falls by 12.4-8.9 = $3.5 billion.

This hurts US economy as its net exports falls by $3.5 billion thereby, lowering US GDP.

Rahul Sunny answered 1 year ago

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