Problem%20Set%20_5b%20ANSWERS - Econ 181 International...

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1 Econ 181: International Trade Spring 2009 Problem Set #5b ANSWERS (Due Tuesday, April 21, 2009) 1. Article Analysis—Tariffs. Read this article and answer the following questions. Elizabeth Becker, "Textile Quotas to End, Punishing Carolina Towns". The New York Times , Tuesday, November 2, 2004. The URL is: a. 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 Bangladesh. b. Based on your answer to the previous question, who must hold the quota licenses under the existing system? It must be foreigners, making the effect of the quota similar to a voluntary export restraint (VER). 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 productive capacity. c. 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. d. 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 better off . 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 difficult."
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This note was uploaded on 11/13/2009 for the course ECON 181 taught by Professor Kasa during the Spring '07 term at Berkeley.

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Problem%20Set%20_5b%20ANSWERS - Econ 181 International...

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