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10.5 IMPORT QUOTAS AND TARIFFS 429
Problem With the tariff, how many units would be DVDs at a price of $30. They would demand 70,000
imported? How much would domestic producer surplus units, and domestic suppliers would produce 30,000
change if the government introduces a $10 import duty units. Therefore 40,000 units would be imported.
per DVD player? How much revenue would the domes- With the tariff, domestic producer surplus would
tic government collect from the imports of DVD players? increase by area G ($250,000). The government would
collect revenues represented by area F from the imports
Solution The accompanying graph shows the do- ($400,000).
mestic supply and demand curves. With a tariff of $10 per
unit, domestic consumers would be able to buy imported Similar Problems: 10.27, 10.28

$100
S

Price (dollars per unit) $50

$30
G F
$20

D
20 30 70 80 Q
Thousands of DVD players

APPLICA TION 10.9

Tariffs, Tires, and Trade Wars In September 2009, President Obama announced
imposition of a 35 percent tariff on automobile and
Many U.S. manufacturing industries have struggled light-truck tires imported from China. 18 The tariff would
for years to compete against foreign competition. Over decrease to 30 percent the next year, and 25 percent
the last several decades, the share of the U.S. economy the year after. The decision was seen as a victory for
devoted to manufacturing has declined dramatically. the United Steelworkers Union, since that union rep-
One of the most important sources of foreign competi- resents most workers in the tire industry. From 2004
tion for manufacturing has been China, which can to 2008, imports of tires from China to the U.S. in-
often produce goods at lower cost, particularly because creased threefold, and Chinese companies increased
of the low wages of Chinese workers. their market share from about 5 percent to 17 per-
In 2008 the U.S. economy plunged into recession. cent. At the same time, four American tire factories
It was also an election year, and the candidates for closed, with additional closures expected.
president all tried to win votes from various con- President Obama’s decision was the first time
stituents, including labor unions. During his campaign, that the United States had applied a special provision
Barack Obama used tough rhetoric about restricting of the 2001 agreement in which the country agreed
free international trade, and in the election he won to support China’s entry into the World Trade
the majority of votes of union members. Organization. Under that provision, workers or firms

18 Edmund Andrews, “U.S. Adds Tariff on Chinese Tires.” New York Times (September 11, 2009).