Abstract
The traditional theory of commercial policy focused on tariffs (both in partial and in general equilibrium), but the last few decades have seen an expansion of both non-tariff barriers to trade and discriminatory commercial policies, so that the traditional theory has had to be broadened to make the rigorous analysis of these phenomena possible. Strategic trade policy is also becoming an important tool of commercial policy, and will be treated as well. The emergence of a “new” protectionism, including administered protection, lobbying for protection, and so on, will be dealt with in Chap. 12.
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- 1.
The symbol generally used for the tariff rate is t. However, since in this book we have used the symbol t to denote time, another symbol (d, from duty) has been used to indicate the tariff rate.
- 2.
It is as well to point out that consumers’ surplus—defined by Alfred Marshall as the excess of the total price that consumers would be willing to pay rather than go without the commodity, over that which they actually pay—is a much debated concept and a source of much confusion (it has been humorously renamed “confuser surplus” by Morey (1984)). The graphic measure used in the text is only one of the measures possible and hinges on several simplifying assumptions, amongst which the constancy of the marginal utility of money (see, for example, Hicks, 1981). It should also be stressed that consumption and consumer should be interpreted in the broad sense to mean purchase and purchaser respectively, for whatever purpose the product is bought.
- 3.
Unlike consumers’ surplus, this is a well-defined concept, as it is a synonym for the firms’ profit (difference between total revenue and total cost). If we neglect the fixed cost (which has no consequence on the variations), the total cost of any given quantity, say q 1, is the area under the marginal cost (i.e. the supply) curve from the origin to the ordinate drawn from that quantity (OVFq 1). As total revenue is ONFq 1, producers’ surplus is VNF. If we consider an increase in output from q 1 to q 2, the increase in producers’ surplus is \(\mathit{VMF}_{1} -\mathit{VNF} = \mathit{MNFF}_{1}\).
- 4.
It should be further noted that without this assumption it would not even be possible to sum the surpluses of the single consumers to obtain the aggregate consumers’ surplus, etcetera.
- 5.
This is true independently of the use that the government will make of the tariff revenue: for example it may use it for public expenditure or redistribute it to consumers in various ways.
- 6.
This implicitly assumes that the duty is paid out in terms of commodity A (the numéraire). The results would not change if it were paid out in terms of B.
- 7.
Actually, this case is implicitly contained in Lerner (1936).
- 8.
For brevity’s sake we shall examine the effects of a quota exclusively in a partial equilibrium context and under the assumption that the world price does not change.
- 9.
The auction is only one method of issuing licences to importers. Another is the first-come, first-served basis, still another is the subdivision of the licences among importers in proportion to the quantities imported by each before the introduction of the quota. But it is clear that only by a perfect auction the government’s revenue will be the same as that of an equivalent tariff.
- 10.
We must remember that in the initial situation the official price fixed by the cartel is higher than the marginal cost (this is true in both the monopolistic and quasi-monopolistic cartel). From the point of view of the cartel as a whole, it is not profitable to reduce the price (this, in fact, would lead to lower profits), whilst the single member can—for the motives explained in the text—obtain higher profits by slightly lowering his selling price below the official one; this lower price is nevertheless higher than his marginal cost.
- 11.
To perform those calculations, the general formula derived in the appendix has to be used, and adjustments have to be made for the fact that prices of commodities include other taxes besides tariffs.
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Gandolfo, G. (2014). Tariff and Non-tariff Barriers. In: International Trade Theory and Policy. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-37314-5_10
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