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Assume that Thailand and India are potential trading partners of China. Thailand is a member of ASEAN but India is not.

Assume that Thailand and India are potential
trading partners of China. Thailand is a member
of ASEAN but India is not. Suppose the
import price of textiles from India (PIndia) is 50
per unit under free trade and is subject to a
20% tariff. As of January 1st 2010, China and
Thailand entered into the China-ASEAN freetrade
area, eliminating tariffs on Thai imports.
Use the following figure to answer these
questions:
a. Before the China-ASEAN free-trade area,
how much does China import from each
trading partner? What is the import price?
Calculate the tariff revenue.
b. After the China-ASEAN free-trade area,
how much does China import from each
trade partner? What is the import price?
What is the total tariff revenue of China?
c. Based on your answer to part (b), what is
the impact of the China-ASEAN free-trade
area on the welfare of China?
d. What is the effect of the China-ASEAN
free-trade area on the welfare of Thailand
and India?
e. As mentioned in the Headlines: China-
ASEAN Treaty Threatens Indian
Exporters, the China-ASEAN agreement
may lead to a similar one between China
and India. How would this affect China’s
imports from each country? What would be
the effect on welfare in China, Thailand,
and India if such an agreement was signed?

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