9 lecture_antidumping

Auto industry in china the home monopoly beneted from

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Unformatted text preview: AC′. –  This means the firm can produce S3 without tariff protecGon at PW and sGll cover its AC. Infant Industry ProtecGon •  Effect of the Tariff on Welfare: –  As would be expected, the tariff leads to a deadweight loss measured by (b+d). –  we also have to consider the gain from having the firm operaGng in the future. –  we do this by measuring producer surplus in panel b, area (e). •  This is the present value of the firm’s future producer surplus. •  It is the amount that would be forgone if the firm shut down today. –  To evaluate whether the tariff has been successful, we need to compare the future gain with the present losses: •  If e > (b+d) => successful trade policy Examples of Infant Industry ProtecGon •  Three examples of infant industry protecGon that have occurred. 1. The automobile industry in China 2. The computer industry in Brazil 3. Harley ­Davidson motorcycles in the U.S. •  Although we normally think of developing countries using the infant industry argument, it is not necessarily always the case. Example #1: Auto Industry in China Policy Background: –  UnGl China joined the WTO in 2001, China had protected many of its industries with strict tariffs and quotas. –  Tariffs on autos: •  as high as 260% in the early 1980s •  fell to 80–100% by 1996. •  reduced to 25% by 2006 –  No import quotas by 2006 –  In the 1980s, China permiwed a number of joint ventures between foreign firms and local Chinese partners (majority ownership to Chinese partner) Auto Industry in China –  The regulaGons & high protecGon helped some of the new joint ventures achieve success: •  Volkswagen’s Shanghai plant was by far the winner •  It produced over 200,000 vehicles per year—more than twice as much as any other plant. QuesGon: –  Is China’s success in the automobile industry a case of infant industry protecGon success? Two key issues to verify: i. Welfare Cost of policy are lower than welfare gains ii. Aeer protecGon is removed, the industry is sustainable Auto Industry in China i). Welfare analysis of trade protecGon: •  Costs to Consumers: –  Tariffs + Quotas in an imperfectly compeGGve market => huge raise in consumer prices –  the monopoly power c...
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This document was uploaded on 01/18/2014.

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