S-Space College of Education (사범대학) Center for Educational Research (교육종합연구원) 교육연구와 실천 Journal of the College of Education (師大論叢) vol.26/27 (1983)
The Theory of Optimum Tariff
- Issue Date
- 서울대학교 사범대학
- 사대논총, Vol.26, pp. 173-194
- A tariff is a tax on international trade that can be used either for revenue purposes, to finance real resource transfer from the private community to government, or for protection of domestic enterprise (or both). Less developed countries tend to rely on tariffs more for revenue reasons than reasons of protectionism by comparison with the industrialized countries. But protective tariffs certainly are not unknown in LDC's and developed countries occasionally do use tariffs for revenue purposes. The cost of protection analysis that the potential welfare of the tariff-imposing country falls as the tariff is increased by marginal amounts from zero upwards must be amended when changes in the terms of trade from tariff imposition are taken into explicit account. Since the terms of trade depend on the volume of trade (the less the trade volume by comparison with free trade the greater the terms of trade improvement), efficiency losses due to the decreased trade volume can be offset, partially or fully, by gains from the improvement of the terms of trade. Hence the possibility that a tariff can increase the potential welfare of the tariff-imposing country, at least over certain ranges of tariff imposition. Specifically, if from trade an infinitesimally small tariff is introduced and its rate gradually increased the country’s potential welfare will first increase, reach a maximum, and then decrease as the tariff rate increases, eventually falling below the level of potential welfare achieved under free trade. The tariff that maximizes potential welfare is known as the optimum tariff, defined by the tangency of a trade indifference curve. with the foreign offer curve. Whether a taiff injures or benefits a country’s scarce factors of production depends largely upon how it affects the output of exports and of commodities competing with imports. If output expands in the industries competing with imports and contracts in the export industries, the increased demand for scare factors of production in the expanding industries will normally exceed the supplies made available in the contracting export industries; and, as Stolper and Samuelson have shown, the real returns as well as the relative share of the scarce factors in the national income will thus be increased. In a large part of the nontechnical literature dealing with tariffs, and even in some of the technical literature a shift of this sort is normally taken for granted; indeed, it is frequently regarded almost as a truism that tariffs injure export industries and benefit industries competing with imports. Nevertheless, when both primary and secondary price changes are taken into consideration, this is by no means a self-evident proposition. To be sure, the tariff itself is the cause of a direct increase in the domestic prices of imports over and above world prices, and this constitutes an immediate benefit to the industries competing with imports. But, on the other hand , the tariff is also the cause of a series of events which tend to reduce the world prices of the country’s imports relative to the prices of its exports-i.e., to improve the terms of trade-and this secondary reduction of world prices of imports relative to exports may more than offset the initial primary increase.