INTERNATIONAL TRADE

NAME : MANSI VERMA

PRN : 1212210104

Q1) What effects do you expect tariffs will have on tire imports, prices and production of US tires?

A1) The price of commodity X rises from PX = $1 to PX = $2 as a result of Nation 2's 100 percent tax
on commodity X imports, resulting in a decrease in consumer surplus and an increase in producer
surplus.

The difference between what consumers would be willing to pay for each unit of an item and what
they actually pay is known as consumer surplus. The area under the demand curve above the going
price is used to calculate consumer surplus.

The rate of effective protection is an adequate measure of the degree of protection actually supplied
to domestic producers (g). This is generally very different from the nominal tariff rate (t), and for a
positive value of t, g can even be negative. Only when the nominal rate on imported inputs equals
the nominal rate on the end commodity, or when there are no imported inputs, are the two rates
equivalent. Effective protection rates in industrial countries are often substantially higher than the
equivalent nominal rates, and they rise as the product becomes more processed. Because of their
imperfect equilibrium character, these computations must be utilised with caution.

The china safeguard provision was used for the first time in Obama's tIre tariffs to rationalise import
protection. Safeguard tariffs were a type of temporary trade barrier, which was becoming
increasingly common at the time. TTBs were imposed on specific imports from specific nations for a
short time period.

Following the tariff hike, U.S. tyre imports from China decreased by 67 percent, from about 13
million tyres in the third quarter to 5.6 million tyres in the fourth quarter. Although Chinese tyre
imports to the United States decreased as a result of the tariff hike, overall tyre imports increased as
a result of the replacement of a larger number of imports from other nations. Other foreign
producers, mostly from Asia and Mexico, benefited from increased access to the American market.
Prior to the levies, China had a 30% market share of vehicle tyre imports in the second quarter of
2009. By the end of the fourth quarter of 2009, China's market share of vehicle tyre imports had
plummeted to around 14% as a result of the levies. 8 In 2010, China's market share of vehicle tyre
imports remained stable at around 13 to 15%. By the third quarter of 2011, China's market share of
vehicle tyre imports had plummeted to roughly 11%.

Q2) What effects from the tariffs do you expect in terms of employment in the tire industry and
beyond?

A2) It is well known that employees face large trade adjustment costs as a result of globalisation,
and therefore temporary trade barriers have been increasingly deployed in many nations,
particularly during periods of high unemployment.

As a result, in the face of rising globalisation and economic downturns, temporary trade restrictions
are seen as a viable policy tool for safeguarding local jobs.

However, no research has been done to see if temporary obstacles like this have genuinely
preserved domestic jobs. To address this shortcoming, we examine the United States' petition for a
China-specific safeguard case on consumer tyres. Contrary to the Obama administration's assertions,
we show that the safeguard utilising Abadie et al.'s'synthetic control' technique had no effect on
total employment or average salaries in the tyre business (2010). Further investigation indicates that
this conclusion is not unexpected, as we discover that Chinese imports are totally redirected to other
exporting nations, owing to the large presence of multinational firms in the global tyre market.

Q3) Discuss the various positions of the stakeholders and rationalise them. What is the political
economy of providing protection to certain industries?

Q4)

A4) Dartmouth's Doug Irwin has argued that the types of actions we saw with regard to tyres were,
in part, a result of the political necessity of maintaining public support for an open global trading
system. According to Douglas Irwin, an economist at Dartmouth College, nations would be wise to
maintain or adopt a commitment to free trade.T he overall benefits remain substantial, and the
costs of protectionism are frequently overstated. Furthermore, Irwin observes that many of the
arguments advanced by proponents of protection are questionable. In other cases, lewin contends
that, while unwise protectionist policies have not been as damaging as some have claimed hence