Talk:Tariff/Archives/2015
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Dr. Biswas's comment on this article
Dr. Biswas has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:
I think it would be better if the welfare consequences of imposing a tariff be discussed in some details. Imposition of tariffs has two effects, it increases the output of the import competing sector and brings about a terms of trade improvement. In the case all the markets are characterized by perfect competition, the first channel becomes a source of welfare loss while the second channel improves it. This is because the import competing sector produces a good in which the country concern does not have comparative advantage. On the other hand, improvement in terms of trade makes the price of the importable in the world market fall which is good for the country.
This discussion implies that a small country can have only an optimal tariff equal to zero as there are no terms of trade effect for it ( a small country cannot affect the prices in the world market). Any imposition of tariff would only increase the output of the import competing sector and cause welfare loss. Still, it can be used to protect the import competing sector. For a large country with some monopoly power in the world market, the optimal tariff is always positive. {Reference:World Trade and Payments: An Introduction, 10/E, Richard E. Caves, Jeffrey A. Frankel, Ronald W. Jones} In case markets are imperfectly competitive, increase in output of the import competing sector may not be potentially welfare reducing. This can happen when there are economies of scale in the production. Presence of scale economies implies that as tariffs increase the output of the import competing sector, average costs are reduced which in turn means lower prices for the consumers. (Note that when trade takes place due to imperfect competition, it is not necessarily comparative advantage that drives trade.) {Reference: Krugman, P.R. (1994), Rethinking International Trade, MIT Press, Cambridge.}
Gros (1987){See Gros, D. (1987), "A Note on the Optimal Tariff, Retaliation and the Welfare Loss from Tariff Wars in a Framework with Intra-industry Trade", Journal of International Economics, Volume-23} further argues that when there is strong love for variety amongst the consumers, a small country also enjoys some monopoly power in the world market due to the production of the unique varieties (if there are fixed costs in production no two producer would produce the same varieties) in a trading equilibrium. This means that optimal tariff for a small country may not be necessarily be zero.
We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.
Dr. Biswas has published scholarly research which seems to be relevant to this Wikipedia article:
- Reference : Biswas, Rajit, 2014. "Tariffs that may fail to protect: A model of trade and public goods," MPRA Paper 56707, University Library of Munich, Germany.