Trump dropping some Canada tariffs but 'replacing' them with other products
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Tariffs and protectionism, Supply, demand and prices, Taxes, subsidies and price controls
What happened
The US side said it would remove some tariffs on Canada but "replace" them with tariffs on other products, after a senator had announced that Canada was dropping its tariffs.
The economics
This shows how protectionist measures can be reshuffled rather than removed: tariffs change the relative prices of imported goods and therefore affect supply and demand in the affected markets. A student could diagram how a tariff raises import costs and shifts domestic supply and import demand.
Evaluation
Because tariffs are "replaced" rather than dropped, the overall level of trade barriers may not fall, and short-run consumer prices versus long-run industry adjustment can differ; the protected industries and the importers and consumers gain and lose differently.
Practice question
Using this example, analyse the effects of a country adjusting (rather than removing) tariffs on the market for imported goods and on related domestic industries.
Read the article ↗ · Draw the diagram in the Diagram Lab
Where it fits in the syllabus
- Tariffs and protectionism: Tariffs, quotas and similar barriers that shield domestic producers, at the cost of higher prices and possible retaliation.
- Supply, demand and prices: How a change in demand or supply in one market moves its equilibrium price and quantity.
- Taxes, subsidies and price controls: Indirect taxes, subsidies and maximum or minimum prices that governments use to change market outcomes.
- IB Economics: International Trade, Demand, Supply and Elasticity, Government Intervention and Market Failure
- A-Level Economics: International Economics, Supply and Demand, Government Microeconomic Intervention
- AP Macroeconomics: Open Economy: International Trade and Finance
- AP Microeconomics: Supply, Demand and Market Equilibrium, Market Failure and the Role of Government
- IGCSE Economics: International Trade and Globalisation, Demand and Supply, Government Intervention