Instruments of Trade Policy
Although, economists insist on free trade no country has completely free trade.
- Tariffs: easiest and oldest form of trade policy
- Specific tariff: (e.g., $10/ton of sugar)
- Ad valorem tariff (e.g., 25% of the value of a imported light truck, minivan)
- Tariffs raise the cost of foreign good relative to the domestic good.
- Tariffs benefit the government and local producers (because they can jack up prices) + local jobs
- Anti consumer
- A Japanese consumer pays $890/Yr in higher prices
- Reduce the efficiency of the world economy. Support inefficient local producers.