IPE_4
1. Introduction to International Trade
● Overview of trade policy instruments: tariffs, non-tariff barriers, and export
promotion.
● Importance of understanding tariffs to analyze other trade policies.
● Non-tariff barriers (e.g., import quotas, export restraints, technical regulations)
have grown in significance over the last two decades.
2. Import Quotas
● Definition: Restrictions on the quantity of goods that may be imported, enforced
via licenses or rights.
● Effects:
○ Increase in the price of imported goods.
○ Domestic production rises, consumption decreases.
○ Revenue benefits quota license holders (quota rents), not the government.
○ Net welfare effect is negative, particularly if rents accrue to foreigners.
3. Case Study: U.S. Import Quota on Sugar
● Background:
○ U.S. sugar prices have consistently exceeded world market prices due to
quotas.
○ Main losers: U.S. consumers and food producers reliant on sugar.
○ Main beneficiaries: U.S. sugar producers and foreign entities holding quota
rights.
● Economic Impacts:
○ Consumer losses are estimated at $3.5 billion annually.
○ Total economic costs: $4.4 billion per year.
○ Benefits to sugar producers: $3.9 billion annually, with refiners receiving
the majority.
● Political Economy Aspects:
○ Small, well-organized sugar producers exert significant lobbying influence.
○ Collective action problems prevent widespread consumer advocacy against
quotas.
● Lobbying Dynamics:
○ Substantial campaign contributions by sugar industry groups (e.g., $5
million in 2018) influence legislative outcomes.
● Employment Impacts:
○ Quotas maintain 20,000 sugar production jobs.
○ Potentially 17,000–20,000 jobs could be created in the confectionary
industry if quotas were lifted.
4. Import Quotas and Monopoly
1. Introduction to International Trade
● Overview of trade policy instruments: tariffs, non-tariff barriers, and export
promotion.
● Importance of understanding tariffs to analyze other trade policies.
● Non-tariff barriers (e.g., import quotas, export restraints, technical regulations)
have grown in significance over the last two decades.
2. Import Quotas
● Definition: Restrictions on the quantity of goods that may be imported, enforced
via licenses or rights.
● Effects:
○ Increase in the price of imported goods.
○ Domestic production rises, consumption decreases.
○ Revenue benefits quota license holders (quota rents), not the government.
○ Net welfare effect is negative, particularly if rents accrue to foreigners.
3. Case Study: U.S. Import Quota on Sugar
● Background:
○ U.S. sugar prices have consistently exceeded world market prices due to
quotas.
○ Main losers: U.S. consumers and food producers reliant on sugar.
○ Main beneficiaries: U.S. sugar producers and foreign entities holding quota
rights.
● Economic Impacts:
○ Consumer losses are estimated at $3.5 billion annually.
○ Total economic costs: $4.4 billion per year.
○ Benefits to sugar producers: $3.9 billion annually, with refiners receiving
the majority.
● Political Economy Aspects:
○ Small, well-organized sugar producers exert significant lobbying influence.
○ Collective action problems prevent widespread consumer advocacy against
quotas.
● Lobbying Dynamics:
○ Substantial campaign contributions by sugar industry groups (e.g., $5
million in 2018) influence legislative outcomes.
● Employment Impacts:
○ Quotas maintain 20,000 sugar production jobs.
○ Potentially 17,000–20,000 jobs could be created in the confectionary
industry if quotas were lifted.
4. Import Quotas and Monopoly
