Reference no: EM131904641

1. Under what conditions may a tariff actually make a country better off?

2. In addition to the production and consumption side deadweight losses, what are some of the other potential costs of tariffs?

Tariffs are addressed by using the tools of consumer and producer surplus in a simple partial equilibrium setting to show the effects of tariffs on resource allocation and income distribution. Deadweight losses from tariffs are identified, and a distinction is drawn between consumption losses and efficiency losses. Other potential costs of tariffs are retaliation, lack of incentives for innovation, and rent seeking. The chapter illustrates the possibility for large countries to potentially gain from tariffs and explains

the difference between nominal and effective rates of protection. A case study compares tariffs for high-income and low-income countries within the framework of the Doha negotiations.

Quotas are introduced and are explicitly contrasted with tariffs, both in terms of their transparency and in terms of their revenue effects and deadweight losses.

The last part of the chapter addresses other non-tariff measures. Examples and the problem of interpreting whether a measure is protectionist or serves the public interest are identified. A case study on intellectual property rights describes both the benefits and the potential costs of enforcement through TRIPs.

Transparency is addressed in terms of the mechanisms of protection. When a health law is motivated by market failure and when is it protection? The fact that individual trade laws are based on special interests and assembled piecemeal over time means that they often don't have the intended effects. Barriers in one sector sometimes undermine the goals of barriers in another sector, and it is often difficult to separate protectionist measures from measures that are implemented for entirely different reasons.