ENC 500 Saudi Electronic University MOD5 Trade Barriers in Indonesia Essay

Description

Select a country of your choice (other than Saudi Arabia) and discuss why the country imposes trade barriers. What is the effect on the economy of the country? (Analyze the effect on the trade balance, employment, and economic growth). What are the arguments for and against trade barriers in your chosen country?
Directions:
Your essay is required to be four to five pages in length, which does not include the title page and reference pages, which are never a part of the content minimum requirements.
Support your submission with course material concepts, principles, and theories from the textbook and at least three scholarly, peer-reviewed journal articles. Use the Saudi Digital Library to find your resources.

Use APA style 7th edition guidelines
readings required:

Ting, C., & Hsiao, Y. (2020). Exploring solutions for the trade barriers in Taiwan. Advances in Management and Applied Economics, 10(5), 17-34.

Zolin, M., Cavapozzi, D., & Mazzarolo, M. (2020). Food security and trade

policies: evidence from the milk sector, case study. British Food Journal, 123(13), 59-72. https://doi-org.sdl.idm.oclc.org/10.1108/BFJ-07-2020-0577

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INTERNATIONAL
ECONOMICS
SEVENTEENTH EDITION
ROBERT J. CARBAUGH
© 2019 Cengage. All rights reserved.
1
Chapter 5
Nontariff Trade
Barriers
© 2019 Cengage. All rights reserved.
2
CHAPTER OUTLINE
(1 of 2)
Absolute Import Quota
Tariff-Rate Quota: A Two-Tier Tariff
Export Quotas
Domestic Content Requirements
Subsidies
© 2019 Cengage. All rights reserved.
3
CHAPTER OUTLINE
(2 of 2)
Dumping
Antidumping Regulations
Is Antidumping Law Unfair?
Other Nontariff Trade Barriers
© 2019 Cengage. All rights reserved.
4
Absolute Import Quota
(1 of 7)
• Nontariff trade barriers
• Policies other than tariffs that restrict international
trade
• Absolute quota
• Physical restriction on quantity of goods imported
during a specific time period
© 2019 Cengage. All rights reserved.
5
Absolute Import Quota
(2 of 7)
• Import licenses
• Government allocates import licenses to
importers, permitting them to import product
only up to prescribed limit, regardless of
market demand
• Global quota
• Permits specified quantity of goods imported
each year; does not specify from where
product is shipped or who imports
• Plagued by accusations of favoritism
© 2019 Cengage. All rights reserved.
6
Absolute Import Quota
(3 of 7)
• Selective quota
• Import quota allocated to specific countries
• May lead to domestic monopoly of production
and higher prices
• Quotas may lead to domestic monopoly of
production and higher prices
© 2019 Cengage. All rights reserved.
7
Absolute Import Quota
(4 of 7) Figure 5.1
© 2019 Cengage. All rights reserved.
8
Absolute Import Quota
(5 of 7)
• Trade and Welfare Effects
• Price increase
• Decrease in consumer surplus
• Redistributive effect (a)
• Deadweight loss (b + d)
• Protective effect (b)
• Consumption effect (d)
• Revenue effect (c)
• Windfall profits, a.k.a. quota rent
© 2019 Cengage. All rights reserved.
9
Absolute Import Quota
(6 of 7)
• Quotas versus Tariffs
• When demand is growing, an absolute quota
restricts volume of imports by greater amount
than equivalent import tariff
© 2019 Cengage. All rights reserved.
10
Absolute Import Quota
(7 of 7) Figure 5.2
© 2019 Cengage. All rights reserved.
11
Tariff-Rate Quota:
A Two-Tier Tariff (1 of 5)
• Tariff-rate quota
• Two components
• Allows specified number of goods to be imported
at lower tariff rate (within-quota rate)
• Any imports above this level face higher tariff rate
(the over-quota rate)
© 2019 Cengage. All rights reserved.
12
Tariff-Rate Quota:
A Two-Tier Tariff (2 of 5)
• Administration of tariff-rate quotas
• License on demand allocation
• If demand for licenses is less than quota, system
operates on first come, first serve basis
• If demand exceeds quota, import volume
requested is reduced proportionally among all
applicants
• Allocation may also be based on historical market
share or auctions
© 2019 Cengage. All rights reserved.
13
Tariff-Rate Quota:
A Two-Tier Tariff (3 of 5)
• WTO requires members to convert all
NTBs to tariffs; during transition, tariff-rate
quotas permitted
© 2019 Cengage. All rights reserved.
14
Tariff-Rate Quota:
A Two-Tier Tariff (4 of 5)
Examples of U.S. Tariff-Rate Quotas
Product
Within-Quota
Tariff Rate
Import-Quota
Threshold
Over-Quota Tariff
Rate
Peanuts
$0.935/kg
30,393 tons
187.9% ad valorem
Beef
$0.44/kg
634,621 tons
31.1% ad valorem
Milk
$0.32/L
5.7 million L
$0.885/L
Blue cheese
$0.10/kg
2.6 million kg
$2.60/kg
Source: From U.S. International Trade Commission, Harmonized Tariff Schedule of the United States,
Washington, DC, U.S. Government Printing Office, 2017.
© 2019 Cengage. All rights reserved.
15
Tariff-Rate Quota:
A Two-Tier Tariff (5 of 5)
• Sugar tariffs are bittersweet
• U.S. sugar growers receive government guaranteed
minimum price for sugar, but this attracts imported
sugar
• To prevent imports, U.S. implements tariff-rate
quotas
• U.S. price of sugar almost twice world market price
• Many candy firms that use sugar have left country;
those that remain pass price on to consumers
© 2019 Cengage. All rights reserved.
16
Export Quotas
(1 of 2)
• Export quotas
• Governments enter as form of voluntary export
restraint agreements
• Moderates intensity of international competition;
tend to be more costly than tariffs
• Identical effect to equivalent import quotas,
except implemented by exporting nation
• In 1980s, 67% of costs to U.S. consumers of
these restraints captured by foreign exporters as
profit
© 2019 Cengage. All rights reserved.
17
Export Quotas
(2 of 2)
• Japanese Auto Restraints Put Brakes on U.S.
Motorists
• U.S. & Japan agreed to limit Japanese exports for
3 years beginning in 1981; purpose to help U.S.
auto industry
• But large Japanese car makers largely
unaffected; increased prices & earned record
profits
• In 1984, U.S. consumer paid extra $660 per
Japanese auto and $1,300 per U.S. auto
• 44,000 U.S. jobs saved at cost of $100,000/job
© 2019 Cengage. All rights reserved.
18
Domestic Content Requirements
(1 of 2)
• To limit outsourcing, labor lobbied for
domestic content requirements
• Minimum percentage of a good’s value must
be produced locally to qualify for zero tariff
rates
• Pressure domestic/foreign firms to use
domestic inputs/workers
• Can result in higher input and product prices
and loss of competitiveness
• Subsidized by domestic consumers
© 2019 Cengage. All rights reserved.
19
Domestic Content Requirements
(2 of 2)
© 2019 Cengage. All rights reserved.
20
Subsidies
(1 of 4)
• Subsidies
• May take form of outright cash
disbursements, tax concessions, insurance
arrangements, and subsidized loans
© 2019 Cengage. All rights reserved.
21
Subsidies
(2 of 4)
• Domestic Production Subsidy
• Results in
• Higher output
• Redistributive effects – increase in producer
surplus for more efficient producers
• Deadweight loss – protective effect
• Lower welfare losses than a tariff/quota
• Financed by taxpayers
© 2019 Cengage. All rights reserved.
22
Subsidies
(3 of 4)
• Export Subsidy
• Whereas domestic production subsidy is
granted to producers of import-competing
goods, an export subsidy goes to producers
of goods to be sold overseas
• For both, net price received by producer equals
price paid by purchaser plus subsidy, and subsidy
revenue redistributed in form of producer surplus
© 2019 Cengage. All rights reserved.
23
Subsidies
(4 of 4)
• Export Subsidy (cont’d)
• Higher output and prices for exporters
• Higher exports; lower domestic consumption
• Domestic producers gain at expense of
domestic consumers and taxpayers
• Decrease in consumer surplus
• Increase in producer surplus
• Taxpayers bear cost of export subsidy
• Deadweight losses (welfare)
© 2019 Cengage. All rights reserved.
24
Dumping
(1 of 4)
• Dumping
• A form of international price discrimination
• Occurs when foreign buyers are charged
lower prices than domestic buyers for
identical product
• Also, selling in foreign markets at a price
below cost of production
© 2019 Cengage. All rights reserved.
25
Dumping
(2 of 4)
• Forms of Dumping
• Sporadic Dumping
• A firm disposes of excess inventories in foreign
markets by selling at price below domestic price
• Predatory Dumping
• Producer temporarily reduces price charged
abroad to drive foreign competitors out of business
• Persistent Dumping
• Goes on indefinitely; to maximize economic profits,
a producer may consistently sell abroad at lower
price than at home
© 2019 Cengage. All rights reserved.
26
Dumping
(3 of 4)
• International Price Discrimination
• Producer charges more at home with less
competition, and more overseas to compete
• Submarkets’ demand conditions must differ
• Different demand elasticities (home/foreign)
• Firm must be able to separate submarkets
• Prevent arbitrage (resale of goods at higher price)
• Markets – easier to separate internationally
• High transportation costs
• Trade restrictions
© 2019 Cengage. All rights reserved.
27
Dumping
(4 of 4) Figure 5.5
© 2019 Cengage. All rights reserved.
28
Antidumping Regulations
(1 of 6)
• Antidumping duty
• Levied when
• U.S. Department of Commerce determines foreign
merchandise being sold at less than fair value
(LTFV); and
• U.S. International Trade Commission (ITC)
determines that LTFV imports are causing or
threatening material injury to domestic industry
• Anti-dumping duties imposed in addition to
the normal tariff
© 2019 Cengage. All rights reserved.
29
Antidumping Regulations
(2 of 6)
• Margin of dumping
• Amount by which foreign market value
exceeds U.S. price
• Foreign market value – two definitions
• Priced-based definition
• Dumping occurs when foreign firm sells good at
price in U.S. below home price
© 2019 Cengage. All rights reserved.
30
Antidumping Regulations
(3 of 6)
• Foreign market value
• Cost-based definition (used when pricebased definition cannot be applied)
• Cost of manufacturing merchandise + general
expenses (at least 10% of cost of manufacturing) +
profit on home-market sales (at least 8% of
manufacturing cost + general expense) +
packaging merchandise for shipment to U.S.
© 2019 Cengage. All rights reserved.
31
Antidumping Regulations
(4 of 6)
• Whirlpool Agitates for Antidumping Tariffs
on Clothes Washers
• 93,000 employees, $21 billion in annual sales,
and 70 manufacturing and technology
research centers throughout the world in
2017.
• In 2011, Whirlpool filed anti-dumping and antisubsidy petitions against Samsung & LG,
which it contended were selling in U.S. at
prices substantially less than fair value
© 2019 Cengage. All rights reserved.
32
Antidumping Regulations
(5 of 6)
• 2016: Whirlpool filed again
• 2017: U.S. International Trade
Commission approved Whirlpool’s petition
for safeguard protection
© 2019 Cengage. All rights reserved.
33
Antidumping Regulations
(6 of 6)
• Vaughan-Bassett Furniture Company:
Furniture Dumping from China
• Vaughan-Bassett Furniture and other U.S. furniture
manufactures (over opposition of many U.S. furniture
retailers) filed antidumping complaint against China
• In 2005, U.S. government imposed dumping duties of on
most Chinese furniture shipped to U.S.
• Resulted in decrease in Chinese furniture sold in U.S.
• However, imports from Vietnam, Indonesia, and other
countries filled vacuum
• Returned Vaughan-Bassett Furniture to profitability; is now
largest wood bedroom manufacturer in U.S.
© 2019 Cengage. All rights reserved.
34
Is Antidumping Law Unfair?
(1 of 4)
• Antidumping laws
• Supporters claim such laws needed to ensure
level playing field by offsetting artificial
sources of competitive advantage
• Critics note that although protected industries
gain, consumers lose more and economy as
whole therefore suffers net loss
© 2019 Cengage. All rights reserved.
35
Is Antidumping Law Unfair?
(2 of 4)
• Should Average Variable Cost be the Yardstick
for Defining Dumping?
• Economists argue that fair value should be based on
average variable cost rather than average total cost,
especially when domestic economy experiences
temporary downturns in demand
• Under competitive conditions, firms price goods at
average variable cost
• Antidumping laws punish competitive behavior
• U.S. firms selling at home not subject to same rules
© 2019 Cengage. All rights reserved.
36
Is Antidumping Law Unfair?
(3 of 4) Table 5.3
Dumping and Excess Capacity
No Dumping
Dumping
Home sales
100 units @ $300
100 units @ $300
Export sales
0 units @ $300
50 units @ $250
Sales revenue
$30,000
$42,500
Less variable costs of $200 per unit
?20,000
?30,000
$10,000
$12,500
?10,000
?10,000
$0
$2,500
Less total fixed costs of $10,000
Profit
© 2019 Cengage. All rights reserved.
37
Is Antidumping Law Unfair?
(4 of 4)
• Should Antidumping Law Reflect Currency
Fluctuations?
• Fluctuations in exchange rate can cause a foreign
producer to “dump,” according to legal definition
• Are Antidumping Duties Overused?
• Now, nations small and large bring antidumping
cases, leading to retaliation
• In many cases where imports were determined to
be dumped, they would not have been
questioned under the same countries’ antitrust
laws
© 2019 Cengage. All rights reserved.
38
Other Nontariff Trade Barriers
(1 of 5)
• Government procurement policies: “Buy
American”
• 1933, Buy American Act
• Requires federal agencies to purchase
materials and products from U.S. suppliers
if prices not “unreasonably” higher than
foreign
• “Domestic product,” must 50% domestic
component content and be USA
manufactured
© 2019 Cengage. All rights reserved.
39
Other Nontariff Trade Barriers
(2 of 5)
• Government procurement policies (cont.)
• 1933, Buy American Act
• U.S. suppliers of civilian agencies –
preferences over foreign firms
• 6-12% preference margin
• 50% preference margin for Department of
Defense
• Preferences waived if U.S.-produced good
is not available in sufficient quantities or is
not of satisfactory quality
© 2019 Cengage. All rights reserved.
40
Other Nontariff Trade Barriers
(3 of 5)
• Social Regulations
• Correct a variety of undesirable side effects
markets ignore
• Health, safety, and the environment
• CAFÉ Standards
• Corporate average fuel economy standards
• Passenger cars: 37.8 miles per gallon (2016)
• Light trucks: 28.8 miles per gallon (2016)
© 2019 Cengage. All rights reserved.
41
Other Nontariff Trade Barriers
(4 of 5)
• Europe Has a Cow over Hormone-Treated
U.S. Beef
• Ban on hormone-treated meat
© 2019 Cengage. All rights reserved.
42
Other Nontariff Trade Barriers
(5 of 5)
• Sea transport and freight regulations
• U.S. shipping companies serving Japanese ports
complained of highly restrictive system of port
services
• Required to clear every detail of visits with Japan’s
stevedore-company association
• Dockworkers available only 18 hours a day or less
• Made U.S. goods more expensive in Japan
• In 1997, U.S. and Japan, on brink of trade war,
reached agreement to liberalize port services in
Japan
© 2019 Cengage. All rights reserved.
43

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