Tariff (Trade Protectionism)

• Tariff


  A tax on imports
• How a tariff distorts a market

  1. Tariff is imposed

  2. Supply curve of imports shifts up

  3. Price in the market increases

  4. Domestic supply extends

  5. Domestic demand contracts

  6. Imports are squeezed
• Tariff is imposed

  Supply curve of imports shifts up
• Supply curve shifts up

  Price in the market increases
• Price increases

  Domestic supply extends
• Price increases

  Domestic demand contracts
• Domestic supply extends and demand contracts

  Imports are squeezed
• Tariff diagram


  • Green box - Tariff revenue for government
  • Red triangle - Dead weight loss of consumer surplus
  • Triangle - Dead weight loss of world efficiency
• Tariff protects

  • Infant industries to grow and gain economies of scale
  • Against dumping
  • Domestic employment
  • Against artificial advantages abroad
  • Improves current account position
• The next video will dissect the tariff diagram in more detail and discuss the problems of protectionism