Abstract:
This 10-min. video case is designed to illustrate the role that economic considerations and political calculations play when a large country decides to impose tariffs on imported foreign goods. It uses a real-life example, a trade dispute between the U.S. and the European Union, to explore how the U.S. designed retaliatory import tariffs on certain E.U. goods following a ruling by the World Trade Organization.
The video is meant to complement students' understanding of the role of elasticity of import demand and export supply and the importance of relative elasticities when looking at the incidence of a tariff -- that is, who will ultimately bear the cost. The video can also be used in more general discussions of trade policy and tariffs, and in discussions that bring to bear the political feasibility of certain policies.
Learning Objectives:
This video is meant to engage students in exploring the following factors that large countries may consider when introducing import tariffs:
- How should countries target tariffs?
- Economic arguments for targeting some industries over others when imposing import tariffs.
- Policy goals (e.g. geopolitical goals, protecting domestic industries and employment). Are these goals competing or aligned with the economic goals (raising tariff revenue, increasing domestic social surplus)?
- To what extent is tariff incidence, determined by relative elasticities of import demand and of export supply, a relevant concept when setting trade policy that takes into account competing goals?
