CHAPTER 4

Trade Policy Instruments: Tariffs, Quotas, Subsidies

As we have learned, international trade can affect domestic industries in different ways. Some domestic companies, faced with competition from lower-priced imports, will suffer losses, lay off workers, and go out of business. On the other hand, in response to higher world prices, some domestic companies will increase production to export, increase employment, and enjoy economic profits. Government policy makers will then be pressured to enact policies to protect their domestic firms and their workers from import competition and to promote their export industries. We start by examining policies designed to protect the import-competing industries.

Tariffs

A tariff is a tax that is imposed ...

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