article response 3 - tariffs, the United States and South...

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Article Response Jamie Connell Yu Zhou Article Title: “South Korea and U.S. Reach Deal on Trade” Article source and date: New York Times, December 4, 2010, by Sewell Chan Economic topic (and chapter): Trade and tariffs, Chapter 5 What is the article about? Briefly summarize the issues in a non-technical way. The United States and South Korea have reached an agreement on the removal of tariffs and trade restrictions between the two countries. The main focus of the deal was to remove the tariffs on automobiles. The current tariffs will not be immediately removed, but will be phased out over the next five years. The deal does, however, allow for the tariffs to be re-imposed as a safeguard against uncontrolled imports from South Korea. What are the economics of the article? How does a recent topic covered in the course explain the subject matter of the article? This article addresses the idea that free trade makes everyone better off. By removing the
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Unformatted text preview: tariffs, the United States and South Korea are hoping to bring positive benefits to both countries. With the tariffs in place, domestic consumer surplus is lower than in a free trade situation. Also, this loss in consumer surplus is greater than the gain in producer surplus and government revenue, which means that tariffs create dead weight loss. With the removal of the tariffs, consumer surplus in both countries will increase, and the dead weight loss will be eliminated. Because tariffs are generally put in place to increase domestic producer surplus, the removal of these tariffs could cause a decrease in producer surplus. This decrease, however, will most likely be cancelled out because both countries are removing the tariffs. This means that both domestic industries will see higher levels of exports, which will increase production....
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This note was uploaded on 02/02/2011 for the course ECON 102 taught by Professor Rossana during the Fall '08 term at University of Michigan.

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