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Economics IA Essay

This article discusses how the USA imposes a tariff on Chinese goods. Solar panels. This has led to Beijing retaliating against U. S. Tariffs by imposing duties on imports of U. S. Polyclinics, the raw material used to make wafers for solar cells. A tariff is defined as a tax on imported goods, and duties are also imposed taxes. The effects of a tariff can be shown by the following diagram: Diagram Showing the Effect of a Tariff. (Diagram from: “Protectionism – Barriers to International Trade. “) The tariff increases the price of imports from WAP to WAP+tariff.

As import increases annuity supplied increases domestically from Sq to SSL while quantity demanded decreases domestically from Q to SQL . As a result imports have shrunk from Q-Sq to Q-Ass. From the graph we get that a tariff increases the price of imports and so the imports have fallen. The second thing we learn is that domestic production has increased. The third part we learn is that prices have increased from WAP to WAP+tariff. This tariff also produces government revenue which is equal to the area shaded in. The imposition of a tariff has a number of advantages.

A tariff reduces a current

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count deficit. A current account deficit occurs when the value of imports is greater than the value of exports. By imposing a tariff and reducing the volume of imports the current account deficit will decrease. This seems positive for the USA who has been in an increasingly high current account deficit since 2008. Another benefit is that a tariff will lead to an increase in aggregate demand. As imports decrease aggregate demand increases. The reason for this is that aggregate demand is equal to consumption + investment + government spending + (exports – imports).

Therefore f imports decrease aggregate demand will increase leading to the shift of the aggregate demand curve to the right and an increase in output. This will be beneficial to the US economy as it will lead to more exchange within the US economy. The third positive attribute of imposing a tariff is that it reduces the government deficit. Government budget deficit refers to a case where government revenue is less than government spending and a tariff will provide revenue reducing government deficit. Although the revenue gained from this single tariff is not enough to completely alter the US deficit it is still a worthwhile contribution.

The final and arguably most important attribute of a tariff is that it will protect the infant industries. Infant industries refer to industries domestically located which are in their initial stages of development. By protecting them with a tariff it will allow them to gain economies of scale and eventually be able to compete with foreign firms. For example Collards is not yet able to compete with the cheap to produce Chinese solar panels so a tariff is put in place so that it may grow away from the competition and eventually be able to create economies of scale that can allow it to compete with Chinese products.

Finally, as a result of protecting domestic firms from fierce Economics IA By path Sallower the US government secures many Jobs that might be created if it is allowed to grow which would otherwise be destroyed. Tariffs have many advantages but they also have drawbacks. Tariffs sometimes lead to retaliation. For example the Chinese government retaliated to US tariffs by imposing duties on imports of U. S. Polyclinics. This retaliation means that the exports of the US will decrease. This means that the benefits that we mentioned earlier: increasing Ad and reducing current account deficit will not be a reality as the exports ill also decrease.

The second disadvantage is that it will lead to higher prices. In this article the higher prices will be most felt in the retailers of Sallower who will see a smaller margins. This will harm the US economy. Another disadvantage of a tariff is efficiency loss. When a tariff is introduced domestic production increases and foreign production decreases because of fewer imports. The lower cost of Chinese solar panels indicate that they are more efficient than the new domestic producers. So more efficient world producers are replaced by less efficient domestic producers.

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