SCENARIO: ELECTRIC FAN TRADE
u.S.firms can produce and sell electric fans for $25.The United
States can also import electric fans from China at $40 each and
From Canada at $45 each.Electric fans made in the United
States, China, and Canada are identical.Currently, the United
States imposes a 30% tariff on imported electric fans.
Reference: Ref 112
(Scenario: Electric Fan Trade) Suppose that the United States
Levied a 10% tariff on imported electric fans (rather than the
30% tariff described in the scenario).For the United States,
Would there be trade diversion losses, trade creation gains, or
Both as a result of the formation of NAFTA?

Question

SCENARIO: ELECTRIC FAN TRADE
u.S.firms can produce and sell electric fans for $25.The United
States can also import electric fans from China at $40 each and
From Canada at $45 each.Electric fans made in the United
States, China, and Canada are identical.Currently, the United
States imposes a 30% tariff on imported electric fans.
Reference: Ref 11­2
(Scenario: Electric Fan Trade) Suppose that the United States
Levied a 10% tariff on imported electric fans (rather than the
30% tariff described in the scenario).For the United States,
Would there be trade diversion losses, trade creation gains, or
Both as a result of the formation of NAFTA?

Quizplus · Accepted Answer

With a 10% tariff, the price of Chinese fans would be $44 and Canadian fans $49. U.S. firms can produce at $25, so there would be trade creation gains as cheaper U.S. fans replace more expensive imports.