Problem Set #5b ANSWERS
(Due Tuesday, April 21, 2009)
Read this article and answer the following questions. Elizabeth Becker,
"Textile Quotas to End, Punishing Carolina Towns". The New York
, Tuesday, November 2, 2004.
The URL is:
Both globally and domestically, who are the winners and losers from the end of textile quotas?
Much of the article is devoted to the distributional effects of the end of the quotas, so there
are many clues here.
American textile workers and manufacturers, especially those in North
Carolina, stand to lose.
Consumers and retailers in the U.S. are expected to save an
estimated $6 billion, which is a substantial gain.
Globally, the big winners look to be the
largest developing countries, including China, India, Pakistan, and Brazil.
The article also
suggests that many of the poorest countries in the world will be losers, like Cambodia and
Based on your answer to the previous question, who must hold the quota licenses under the
It must be foreigners, making the effect of the quota similar to a voluntary export restraint
Given the distributional effects in the developing world, smaller poor countries like
Cambodia and Bangladesh must enjoy privileged access to rich country markets, at the
expense of larger producers, like China, whose quota rights must be small relative to their
What will be the aggregate welfare effect of the end of global trading restrictions on textiles for
the United States?
Because the quota licenses are held by foreigners, the gains in consumer surplus will exceed
the losses to producer surplus.
Even in the case where the quota license is owned by a
domestic firm, the terms of trade effect is not generally sufficient to justify intervention.
What does your answer to the previous question suggest about helping Kannapolis, NC residents
who used to work at textile mills?
Because the increase in consumer surplus is greater in magnitude than the decrease in
producer surplus, it is theoretically possible to compensate the losers
and still leave everyone
Clearly the government is not yet doing this, as "[c]urrent trade adjustment
assistance…was denounced by factory owners and union officials as too little and too