Question

Suppose that the United States currently imports 1.0 million pairs of shoes from China at $20 each. With a 50 percent tariff, the consumer price in the United States is $30. The price of shoes in Mexico is $25. Suppose that as a result of USMCA, the United States imports 1.2 million pairs of shoes from Mexico and none from China.

Required:
What are the gains and losses to U.S consumers, U.S producers, and U.S government and the world as a whole?

Answer 1

The implementation of USMCA resulted in changes in shoe imports to the United States, leading to benefits for consumers but potential disadvantages for producers and the government.

Step-by-step explanation:

The implementation of USMCA resulted in the United States importing 1.2 million pairs of shoes from Mexico and none from China. This change in trade pattern has different effects on various stakeholders:

• U.S. Consumers: With the increased import from Mexico, the consumer price of shoes in the United States decreases from $30 to $25. Therefore, U.S. consumers benefit from lower shoe prices.
• U.S. Producers: U.S. producers in the shoe industry face increased competition from cheaper Mexican imports, which may lead to decreased market share and potential job losses.
• U.S. Government: The U.S. government loses revenue from the 50 percent tariff that was imposed on Chinese shoe imports. However, it gains revenue through other means such as taxes and duties imposed on Mexican shoe imports.

Overall, U.S. consumers benefit from lower prices, but there may be negative impacts on U.S. producers and the government faces changes in revenue.

Answer 2

Trade situation is a win-win game for US consumers as well as US producers and for all the whole world.

Since China is producing cheaper shoes which means US consumers will be gain from Chinese import at a reduced cost and that will result in higher consumer surplus. But because of the tariff, US consumers are at a disadvantage. Due to free trade agreement between US and Mexico, Chinese producers lost as their is tariff in their product which make it to be uncompetitive.

Step-by-step explanation:

Looking at the difference between importation cost from both Mexico and China,

I.e Consumer Price of Mexican shoes - Consumer Price of Chinese Shoes = $30 - $25 = $5

Which means US consumers are paying $5 extra for Mexican import than Chinese import without tariff

For Chinese product

With the tariff, US consumers were paying ( 1 million * $10 ) = $10 million

Net consumer surplus is -$10 million USD.

For Mexican product

1.2 million * $5 = $6 million

Net Gain

$10 million - $6 million = $4 million.

The Net losses for US Sellers is $6 million

US government is losing all its tariff because of the free trade agreement resulting from Mexican import

1 million * $10 = 10 million

Trade situation is a win-win game for US consumers as well as US producers and for all the whole world.

Since China is producing cheaper shoes which means US consumers will be gain from Chinese import at a reduced cost and that will result in higher consumer surplus. But because of the tariff, US consumers are at a disadvantage. Due to free trade agreement between US and Mexico, Chinese producers lost as their is tariff in their product which make it to be uncompetitive.