ec340ch5 (4) - Why then do so many countries use tariffs? A...

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Why then do so many countries use tariffs? A second reason is politics. If the government cares more about producer surplus than consumer surplus, it might decide to use the tariff despite the deadweight loss it incurs. The benefits to producers (and their workers) are typically more concentrated on specific firms and states than the costs to consumers, which are spread nationwide. We can use our small country model from above to calculate a rough estimate of how costly these tariffs were in terms of welfare. We will estimate the deadweight loss due to the U.S. steel tariff in place from March 2002 to December 2003. President Bush requested that the U.S. International Trade Commission (ITC) initiate a Section 201 investigation into the steel industry. The ITC determined that the conditions were met and recommended that tariffs be put in place to protect the U.S. steel industry. The tariffs varied across products, ranging from 10 to 20%—shown in the next Table—then falling over time to be eliminated after 3 years. The ITC decision showed it thought that the losses from rising imports and falling
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This note was uploaded on 02/14/2012 for the course EC 340 taught by Professor Ballie during the Spring '10 term at Michigan State University.

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ec340ch5 (4) - Why then do so many countries use tariffs? A...

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