375513642799MPE 711-Global Trade and Supply Chains
375513642799MPE 711-Global Trade and Supply Chains
Trimester 2 2024
Assessment Task 1 Written Assignment - Individual
Due date: Friday, August 23, 2024 by 8:00 pm AESTPercentage of final grade: 25%Word count: 1500 (excluding references)
Description/ Requirements
This is an individual assignment. While you are allowed to discuss the questions with other students, you need to submit your own original work.
Questions of the assignment are covered in topics on the Ricardian model of comparative advantage and the instruments of trade policy.
You can use hand-drawn diagrams or digitially crated diagrams in your answer.
Once completed, you need to submit your assignment as a PDF document via CloudDeakin. You must submit a single file only. You will not need to submit a hardcopy.
Assignment Details
1. The Production Possibility Frontiers of the United States and Mexico are presented below. Note that points a and b are the optimal production/consumption equalibria in autarky (before) in the two countries. United States Mexico
33902651682750053276520637500 Rice Rice33756605207000 400
575311283210003276600165100377190027178000344424027940000464820165100373380023368000 200 200 b
441960163830001692275270510577850224790166116017145000 100 a
41148011684000332232093980
0 300 600 Cars 0 100 200 Cars
Identify which country has a comparative advantage in the production of which good? Be elaborate in your answer.
(2 marks)
Identify the price condition for mutually beneficial trade when the United States and Mexico are allowed to trade with each other.
(3 marks)
Note that the diagrams also show the optimal production/consumption equlibrium for the United States in autarky is 100 units of rice and 300 cars while the optimal production/consumption equilibirum for Mexico in autarky is 200 units of rice and 100 cars. Please show that according to the Ricardian model of comparative advantages, there exists mutually beneficial trade for both countries such that they are better off than otherwise.
Identify at least a scenario in which both countries are unambigously better off with trade than otherwise. Be elaborate in your answer.
(5 marks)
2. Read the following article in the Economist on March 24, 2018: Why tariffs on steel and aluminium are easier said than done. The article can be found following the assignments questions.
The article analyses the possible effects of the decision by Donald Trump to impose tariffs on the US steel and aluminium imports. Note that the US clearly can be considered to be a large importer of steel.
Now assume that the United States trades steel and aluminium only with China. Suppose that the US and China have the following demand and supply functions for steel and aluminium:
United States: QD=14-P (1)
QS=-6+P (2)
China: QD*=12-P (3)
QS*=P (4)
where Q, P, D, S, and * denote quantity, price in US dollars, demand, supply, and China, respectively.
2.1. Determine the equilibrium price and quantity in autarky in both countries.
If the US and China are assumed to trade with each other only, determine the equilibrium in free trade. In other words, please determine the equilibrium price of steel and aluminium in free trade and the volume of bilateral trade. (3 marks)
USA China
41651881815410017380116180400Price Price1894699679002201395327000 QS
419608017780000 QS*
42056051269900
122555239395 QD QD*
410273585090 Quantity
Quantity
Assume for now that the US, the importing country, imposes a specific of $US 1 on its steel and aluminium imports and China does not retaliate. Please explain the effects of the US import tariff on the US steel and aluminium import and provide a detailed welfare analysis of the effects of the US tariff on US steel producers, US steel consumers and US government tariff revenue. Show that the welfare effects of the US import tariff are the same regardless of which of the two groups (the US steel and aluminium consumers and Chinese steel and aluminium producers) pays the US import tariff.
(6 marks)
After reading the article in the Economist, use concepts you have learned in MPE711 to explain why tariffs on steel and aluminum are easier said than done?
(6 marks)
End of the assignment questions
The Economist
Steel banned
Why tariffs on steel and aluminium are easier said than done
History offers some tough lessons
Print edition | Finance and economicsMar 24th 2018HISTORY will rhyme on March 23rd, when Donald Trumps tariffs on steel and aluminium imports are due to come into force. Several previous presidents, from Ronald Reagan to Barack Obama, also used tariffs in an attempt to protect Americas steel producers from foreign competition. (There are historical echoes, too, in Mr Trumps plans to slap tariffs on a range of Chinese imports; in the 1980s Japan was the target.) A rhyme is not a repeat. But past experience is not encouraging.
The central problem for Americas policymakers is that trade is like water. Block its flow in one place and pressure builds elsewhere. When many countries are covered by tariffs, trade may simply be diverted through those countries that are let off the hook. Importers will howl for exemptions. As a result, whatever the Trump administrations broader ambitions with respect to trade, bellicose unilateralism will make them harder to achieve.
In 1982 America browbeat the European Community, the forerunner of the European Union, into limiting its steel exports to America. But compensating flows from other countries were so great that Americas steel imports increased overall. Exemptions for Canada, Mexico, Israel and Jordan when George W. Bush imposed tariffs on steel imports in 2002 allowed the value of their exports to America to surge by 53%. Canadian and Mexican exporters, who are exempt from the latest tariffs, already account for a big share of American imports (see chart 1). They could clean up.
In an attempt to stop such substitution Robert Lighthizer, the United States Trade Representative, is said to be offering to spare Americas allies from the tariffs if they ensure their exports to America do not exceed the level in 2017. On March 21st he hinted that negotiations could last until late April. But such a deal would break the World Trade Organisations rules, and put bureaucrats, not markets, in charge of allocating export rights.
When different countries receive different treatment, circumventing tariffs looks more tempting. Under Mr Obama, America imposed hefty anti-dumping duties on imports of Chinese steel. Inflows from China duly fell, but those from Vietnam surged. Americas Commerce Department recently concluded that some steel imports, supposedly from Vietnam, actually originated in China. Mr Trump expects Canada and Mexico to ensure they do not become conduits for steel originating elsewhere. But that may be hard, especially for the generic, less processed stuff.
Mr Trumps tariff barriers are broader than Mr Obamas were. That makes circumvention harderbut also means importers will squeal more loudly for exemptions. After Mr Bushs steel safeguards were applied to the EU and Japan in 2002, companies cut off from their suppliers expended much time and money pleading their case in Washington. Eventually 1,022 exemptions were granted, over 90% of them to firms importing from Japan and the EU. This time, the Trump administration expects to spend 24,000 worker-hours processing 4,500 requests to exempt steel products and 1,500 pleas for aluminium. Lobbyists are rubbing their hands.
Metal consumers will also seek to be spared pricier inputs, which can threaten jobs. In 2002 the employers of Gordon Jones, a steel-drum loader, were thwacked with a 30% tariff. They say that these tariffs are supposed to help workers, to save steel jobs, but what about me? Mr Jones asked a congressional hearing. More such complaints will come, since steel-consuming sectors account for far more American jobs than steel production (see chart 2).
Tariffs are not Mr Trumps only trade policy. As well as trying to rewrite the North American Free-Trade Agreement, he is trying to curb Chinas trade power. Whatever the merits of these aims, the new tariffs will make it harder to rally allies to his side. Issues like this have a way of overtaking any meeting or any discussion youre having, says Wendy Cutler, a trade negotiator under Mr Obama.
Bill Brock, who was the United States Trade Representative under Reagan, recalls negotiating trade restrictions with Japan in the 1980s. Even amid tensions, he remembers treating Japanese negotiators with respect, knowing that harm to one part of the trade relationship could affect others. Tariffs are single-shot measures to deal with single issues, he warns, and risk complicating efforts to resolve broader ones. Of all the stupid self-defeating things we can imagine, a trade war is the top of the list.
End of the article
This article appeared in the Finance and economics section of the print edition under the headline "Steel banned".
Online link to the article: https://www.economist.com/finance-and-economics/2018/03/24/why-tariffs-on-steel-and-aluminium-are-easier-said-than-done.
