Competitiveness Policies
Economics: Edexcel A A Level, topic 9.1.4
Tariffs
Tariffs are effectively an ad valorem tax on the goods and services that are imported into a nation.
Pre tariff
- Before the tariff, the domestic suppliers produce an output of Q2.
- The rest of the supply is imported from the rest of the world.
Post tariff
- After the tariff, the amount produced domestically is Q4.
- Tax revenues raised are worth the total of the pink box. This is equal to the change in price caused by the tariff multiplied by the number of imports.
USA in 1800s
- The USA used tariffs on foreign imports in the 19th century.
- They protected their infant industries of pig iron and steel and this helped their economy develop technologically.
Improving international competitiveness
- By protecting an infant or mature industry, a nation can learn by doing.
- Developing know how, capital and human capital in an industry, a nation can increase its productivity and international competitiveness.
Other Methods of Increasing Competitiveness - USA
The USA has increased its competitiveness through the following methods:
Technological advances
- The USA can increase its competitiveness using technological advantages.
- The US Shale Gas industry developed new methods to extract natural gas from the ground at a very low cost.
- This can allow the USA to exploit its natural resource endowments and export more energy to the world.
Flexible labour market
- The USA has a flexible labour market, with a low minimum wage and less red tape on hiring & firing than many other nations.
- This flexibility can help to keep businesses’ labour costs low and make the USA more competitive.
Quotas
- The USA has something called Tariff Rate quotas on some goods, such as Satsumas and Tuna.
- Having quotas, can help to support domestic infant industries. - Quotas can also be used to help to protect mature industries.
- However, nations may retaliate against quotas and tariffs.
Test yourself on Competitiveness Policies
What is the pink box?
Is the USA's labour market flexible or rigid?