Foreign Trade Quotas:the U.S. Gives Money Away

I wrote earlier that the U.S. pressure on China not to export so much clothing to the U.S. would have a detrimental impact on U.S. consumers. I also pointed out that it would likely harm poorer consumers, who are more likely to purchase lower-priced clothing.

Imposing quotas has the additional pernicious effect of giving a bunch of the rents to the people in the exporting country rather than the importing country, as Ben Muse discusses at his blog.

Are the new Chinese taxes on their own clothing and textile exports an attempt to stave off U.S. and E.U. import restrictions - or are they an attempt to exploit those restrictions, and benefit from them?

My answer is "yes".

Ben presents numerous links in his posting, but the clearest is this one, which uses basic supply and demand analysis to discuss who gets harmed, who benefits, and by how much.

Because there are both positive and negative elements, the net national welfare effect can be either positive or negative. The interesting result, however, is that it can be positive. This means that an export tax implemented by a "large" exporting country may raise national welfare.

note to colleagues: I know, I know. It doesn't use computed general equilibrium models. The results are the same, so why bother.