Introduction Tariffs, quota's, and other trade restrictions Tariffs and partial equilibrium
Free Trade, Fair Trade & Tariffs - TAC - Home · 10/30/2018 1 Free Trade, Fair Trade & Tariffs...
Transcript of Free Trade, Fair Trade & Tariffs - TAC - Home · 10/30/2018 1 Free Trade, Fair Trade & Tariffs...
10/30/2018
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Free Trade, Fair Trade & Tariffs
Texas Public Funds Investment Conference
November 8 - 9, 2018
William T. Chittenden, Ph.D.Associate Dean for Graduate Programs
McCoy College of Business AdministrationTexas State University
It’s Not Politics, It’s Economics
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What is Free Trade?A policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports)
Source: https://www.britannica.com/topic/free-trade
Free Trade AgreementsAustraliaBahrainCanadaChileColombiaCosta RicaDominican RepublicEl SalvadorGuatemalaHonduras
IsraelJordanKoreaMexicoMoroccoNicaraguaOmanPanamaPeruSingaporehttps://ustr.gov/trade-agreements/free-trade-agreements
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Absolute Vs Comparative Advantage
Absolute Advantage
12 wines, 5 pizzas 4 wines, 4 pizzas
Absolute Vs Comparative Advantage
Comparative Advantage
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Absolute Vs Comparative Advantage
Comparative Advantage
with Free Trade
Trade 5 wines for 7 pizzas
13 wines, 7 pizzas 5 wines, 5 pizzas
What is Fair Trade?No universal definition of “fair”
Often focus on wages, working conditions, and child labor issuesOther areas of focus are government subsidies and intellectual property
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International TradeGoods and Services
2017$2.3 trillion in exports to the rest of the world$2.9 trillion in imports from the rest of the world• $566 billion trade deficit
• 2.9% of U.S. GDP
Source: https://www.census.gov/foreign-trade/Press-Release/2017pr/12/ft900.pdf
Where Does the U.S. Export To?
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Where Does the U.S. Import From?
International TradeGoods and Services
2017Canada: $2.8 billion surplus• $341.3 billion in exports & $338.5 billion in imports
Mexico: $68.7 billion deficitU.K.: $15.6 billion surplusE.U.: $101.2 billion deficitHong Kong: $35.1 billion surplusChina: $335.7 billion deficit• $188.0 billion in exports and $523.7 billion in imports
Source: https://www.bea.gov/international/index.htm
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International TradeGoods and Services
Source: https://data.worldbank.org/indicator/
Are Trade Deficits Bad?Factors Impacting Trade Imbalances
Relative Growth Rates of Economies• Faster growth attracts investment funds, which can be
used to buy more importsRelative Value of Currencies• ↑ value of the dollar makes U.S. exports more expensive,
thus reducing demand for our exportsSavings and Investment Rates• If Savings < Investment, U.S. will attract foreign capital
Source: https://www.cato.org/publications/commentary/are-trade-deficits-really-bad-news
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Are Trade Deficits Bad?Balance of Payments
Current Account = Capital Account• “dollars that leave the U.S. to buy foreign goods,
services, or assets find their way back to the U.S. economy to purchase U.S. goods, services, and assets”
• Current account deficit is a mirror image of the capital account surplus
What is a Tariff?Tax paid by American consumers in the form of higher prices
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What is a Tariff?A tax on imports or exports
Typically “Ad Valorem”Alternatives
Import QuotasExport SubsidiesVoluntary Export Restrictions
Arguments for TariffsDomestic JobsInfant IndustriesNational SecurityRetaliation
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Examples of Tariffs on ImportsPaper Clips
126.94% tariff on paper clips made in ChinaCanned Tuna
35% tariff on canned tuna imported from EcuadorShoes
48% tariff on foreign shoe importsTobacco
350% tariff on imported tobaccohttps://www.investopedia.com/ask/answers/051315/what-are-examples-products-and-companies-rely-protective-tariffs-survive.asp
Examples of Tariffs on ImportsClothing
16% - 19% tariff on 75% of imported clothing• Costs the average family $300 more per year
“Chicken Tax”25% tariff on imported pickup trucks
https://www.nbcnews.com/business/economy/tariffs-sugar-shoes-mean-higher-costs-consumers-n882071https://www.npr.org/templates/transcript/transcript.php?storyId=511663527
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Examples of Tariffs on ImportsSugar
88% tariff on imported raw sugar• 2017 cents per pound
• World: 15.81• U.S. 27.92
73% tariff on imported refined sugar• 2017 cents per pound
• World: 19.62• U.S. 31.33
https://www.ers.usda.gov/data-products/sugar-and-sweeteners-yearbook-tables.aspx
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Which is subject to a tariff?
Examples of Tariffs on ExportsCanada
North American Free-Trade Agreement (NAFTA)*245% on cheese298% on butter0% on ultra-filtered milk
PeruPeru Trade Promotion Agreement (PTPA)80% of exports to Peru are duty-freeRemaining tariffs being phased out by 2025
https://ustr.gov/sites/default/files/files/reports/2017/NTE/2017%20NTE.pdf
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Examples of Tariffs on ExportsEuropean Union
10.9% average on agricultural goods3.9% average on non-agricultural goods• 26% on fish and seafood• 22% on trucks• 10% on processed wood products• 14% percent on bicycles
https://ustr.gov/sites/default/files/files/reports/2017/NTE/2017%20NTE.pdf
Current “Trump” TariffsJanuary 2018
20%/50% on imported washing machines• $1.8 billion
30% on solar panel components• $8.5 billion
https://www.npr.org/sections/thetwo-way/2018/01/22/579848409/trump-slaps-tariffs-on-imported-solar-panels-and-washing-machines
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Current “Trump” TariffsMarch 2018
25% on steel & 10% on aluminum imports• $33 billion
Canada, Mexico, and EU exempt
https://www.wsj.com/articles/u-s-slaps-steel-aluminum-tariffs-on-canada-mexico-european-union-1527774283
Current “Trump” TariffsApril 2018
25% on 1,333 Chinese products• $46 billion• Mostly intermediate inputs and capital goods
https://piie.com/blogs/trade-investment-policy-watch/trump-trade-war-china-date-guide
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Current “Trump” TariffsJune 2018
Canada, Mexico, and EU steel and aluminum exemption revoked• $15 billion
https://www.wsj.com/articles/u-s-slaps-steel-aluminum-tariffs-on-canada-mexico-european-union-1527774283
Current “Trump” TariffsAugust 2018
China• 25% tariff on $16 billion of goods
https://www.cnn.com/2018/08/21/politics/chinese-tariffs/index.html
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Current “Trump” TariffsSeptember 24, 2018
10% tariff on $200 billion of Chinese goods• 25% by end of the year• Exempt:
• Smart Watches• Bluetooth Devices• Car Seats• High Chairs
https://www.wsj.com/articles/trump-to-lay-out-line-on-china-trade-1537213209?mod=djem10point
RetaliationMexico
Tariffs on “steel products, lamps, berries, grapes, apples, cold cuts, pork and various cheeses”• June/July 2018: $3 billion
Canada“25% tariff on steel imports from the U.S. and a 10% tariff on aluminum and a wide range of other U.S. goods, including some food and household products”• June 2018: $12.8 billion
Source: https://www.wsj.com/articles/u-s-slaps-steel-aluminum-tariffs-on-canada-mexico-european-union-1527774283
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RetaliationEuropean Union
Tariffs on hundreds of items, including peanut butter, bourbon, motorcycles, cranberry juice, denim, corn, and T-shirts• June 2018: $3.2 billion
http://time.com/money/5304493/us-exports-tariffs-list/
RetaliationChina
Tariffs on items including soybeans, automobiles, frozen orange juice, beef, and aircrafts• April 2018: $2.8 billion• June 2018: $34 billion• August 2018: $16 billion• September 24, 2018: $60 billion
• 5,207 U.S. products, including farm goods, machinery and chemicals
http://fortune.com/2018/04/04/china-tariffs-new-products-trade-war/http://time.com/money/5304493/us-exports-tariffs-list/https://www.cnn.com/2018/08/21/politics/chinese-tariffs/index.htmlhttps://www.wsj.com/articles/chinese-officials-scramble-to-respond-to-trumps-new-tariffs-1537275015?mod=hp_lead_pos2
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Business ReactionShift ProductionForeign InvestmentAutomation/Increased Productivity
Do Tariffs Save Jobs?Yes, but …
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Do Tariffs Save Jobs?2000 - 2007
2017 Federal Reserve Study on Impact of Chinese Imports800,000 manufacturing jobs in U.S. lost but offset by like number of jobs in other sectorsIncreased “buying power of $260 a year on average for every American for life”
https://www.stlouisfed.org/open-vault/2018/march/roundup-tariffs-jobs-trade-deficit
Do Tariffs Save Jobs?2009
35% tariff imposed on tires imported from ChinaSaved 1,200 U.S. tire-manufacturing jobsthrough 2012Cost Americans $1.1 billion or $917,000 per job paying an average of $40,000 per year
Source: http://money.cnn.com/2017/01/03/news/economy/obama-china-tire-tariff/index.html
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Do Tariffs Save Jobs?2018
Estimated Steel and Aluminum Tariffs will save 33,464 jobs in those industries
But will cost 179,334 jobs throughout the rest of the economy
http://tradepartnership.com/wp-content/uploads/2018/03/232EmploymentPolicyBrief.pdf
Real Trade Issues with ChinaMarket AccessIntellectual PropertyCurrency Exchange RatesGovernment Subsidies
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SummaryTrade Deficits are not inherently badFaster Economic Growth contributes to the Trade DeficitGovernment Budget Deficit can contribute to the Trade DeficitStrong Dollar contributes to the Trade DeficitTariffs make all countries worse off
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Questions?