Tutorial 6

Question 1

Summary of Case Study: The Politics of Trade in Steel

The opening case illustrates the nature of such political realities. The case describes

the Bush Administration imposed tariffs on imports of foreign steel into the United

States. The tariffs were designed to protect jobs in politically important steel

producing states. However, the tariffs had unintended consequences that apparently

outweighed any positive effects. The tariffs raised costs to U.S. steel consumers, and

resulted in lower profits and job losses in steel consuming sectors. Discussion of the

case can revolve around the following questions:

(i) The United States imposed the steel tariffs in an effort to protect American jobs in

politically important steel producing states. Yet, ultimately, the effect of the tariffs

was jobs losses in other sectors and higher prices for consumers. Explain the

unintended effects of the steel tariffs.

(ii) In your opinion, how would Smith, Ricardo, and Hecksher-Ohlin (see Chapter 5)

view the actions of the Bush Administration with regard to the steel tariffs?

Question 2

Summary of Case Study: Agricultural Subsidies and Development

The closing case describes the government sponsored subsidies and tariffs on

agricultural products in the United States and EU countries. The subsidies and tariffs

protect farmers in those countries from low commodity prices, however at the same

time, hurt farmers in the developing nations. According to the United Nation, the

subsidies and tariffs effectively cancel out the aid provided by the developed world to

the developing nations by limiting export earnings from agricultural products.

Discussion of this case can revolve around the following questions:

(i) If agricultural tariffs and subsidies to producers were removed overnight, what

would the impact be on the average consumer in developed nations such as the

United States and the EU countries? What would be the impact on the average

farmer? Do you think the total benefits outweigh the total costs, or vice versa?

(ii) Why do you think governments in developed nations continue to lavish extensive

support on agricultural producers, even though those producers constitute a very

small segment of the population?

Question 3

The collapse of the Doha Round of trade talks represents a dramatic setback to the

process of building a more prosperous global market. Briefly explain the reasons for

the collapse of the Doha round and its dramatic implications for the future of trade

and global economic growth.