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Ib Economics Commentary

China to put duties on US chicken imports The article centers around anti-dumping tariffs on United States chicken imports. The duties were introduced by China, which claims that American poultry firms are exporting the meat at unfairly low prices. The effects are growing trade disputes and accuses between the two countries. Tariffs can be explained as a tax levied on imported goods. Tariffs are a form of protectionism. Tariffs can be ad valor (percentage of the value of the good that is being imported) or specific (tax based on a measurable unit as tones ).

Protectionism is any form of action taken by a country to decrease the ratio of domestic goods to imported goods. The aim of protectionism is to make domestic goods more competitive. The article mentions that the demand for chicken wings and feet is higher in China than in United States. American poultry companies, knowing that chickens are considered to be delicacies in China, prefer to sell them on the Chinese market. The graph above explains the situation. Since the poultry is not so popular in America as in China, the demand for chickens

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in America is labeled as D US and the demand in

China for chickens

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as D China. When American poultry companies are operating at point A, they can only sell QUO for the price POP. When they decided to export their goods to China and started operating at point B, they automatically increased the production from QUO to IQ . Also the price has moved upwards as the Chinese demand is higher. Hence, there is no wonder why US companies prefer to sell their goods abroad. China in order to protect the domestic market sets tariffs on imported American poultry. The graphs above and on the next page present how the situation looks like fore and after setting tariffs.

Earlier US could supplied goods from IQ to SQ at a price Pl, while the domestic producers were able to sell IQ tones per year. After the tariff from Pl to UP was levied on imported poultry, the imports decreased from IQ SQ to SQ. Since the prices are higher the demand for imported goods has fallen. The effect is that domestic producers can now supply SQ goods at the price UP. The combination of higher price level and lower demand lead finally to lowering imports and thus, increasing domestic production. China has blamed US of exporting chickens at unfairly low prices.

They suspect that the meat was dumped on their market and had to set anti-dumping tariffs. Dumping can be explained as selling goods below production cost and below the domestic price level. Dumping is an action that intends to drive competitors out of the market. Anti-dumping is an action taken by the country on which the goods are dumped. This country sets anti-dumping tariff on imported goods in order to reflect the true cost of production. The graphs on the next page explain how dumping works. The first graph presents the situation on the US market.

On the graph it can be seen that there is a lb Economics Commentary By cockier production Pl what can be seen on the second graph. SQ and QUO’4 represent the chicken dumped on the Chinese market. This will result in the decrease of domestic consumption from Q’4 at POP to G’S at the price Pl . China has already set tariffs on leading American poultry firms, which vary from 43. 1% to even 64. 5%. The tariffs are said to start from 14 February. This has led to the rosining of trade relations between the two countries.

US has already accused Beijing of keeping the Chinese currency Yuan undervalued to help Chinese exporters. The graph below shows how low exchange rates of Yuan can support Chinese exporters. The exchange rate is the price of currency expressed in terms of another currency. When China decreases the exchange rate from 1. 05 to 1. 01 by increasing the supply of Yuan, the quantity demanded for exports will increase. The two nations have clearly an argument. They are not only about chickens but also bout clothing exports.

In my opinion the article was informative and focused on the most relevant matters. The author explained briefly and in an interesting way the complication between the two countries. However, what I think is that the article would be far more absorbing if he focused more on the tariffs on Chinese tires and clothing exports, about which he only mentions. My belief is that the sum of poultry and tires tariffs, rows about clothing exports and film piracy has led to the quarrel between the two nations and that one were the effect of another.

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