Use the following information to work. Before 2015, trade...

Use the following information to work. Before $2015,$ trade between China and South Korea was subject to tariffs. In $2015,$ China and South Korea signed a free trade agreement that aims to remove most barriers to trade between the countries. Suppose that in 2016 automobile producers in China lobby the Chinese government to impose an import quota on South Korean cars. Explain who in China would gain and who would lose from such a quota.

Use the following information to work. Before $2015,$ trade between China and South Korea was subject to tariffs. In $2015,$ China and South Korea signed a free trade agreement that aims to remove most barriers to trade between the countries.
Suppose that in 2016 automobile producers in China lobby the Chinese government to impose an import quota on South Korean cars. Explain who in China would gain and who would lose from such a quota.

Key Concepts

Redistribution Effects in Trade

Trade policies like quotas generally cause a redistribution of economic welfare. Domestic producers may gain from reduced competition and increased market power, while domestic consumers typically bear higher prices and limited choices. Additionally, such policies may introduce inefficiencies and deadweight losses into the economy, reflecting the cost to society beyond the immediate benefits to specific interest groups.

Free Trade Agreements

Free trade agreements are treaties between two or more countries that aim to reduce or eliminate barriers to trade, such as tariffs and quotas. They facilitate market access, increase competition, and generally lower the prices of goods by permitting easier cross-border trade.

Import Quotas

An import quota is a government-imposed limit on the quantity or value of a particular good that can be imported into a country. Unlike tariffs that tax imports, quotas physically restrict supply, which can lead to higher domestic prices and altered market dynamics by limiting competition from foreign producers.

Trade Protectionism

Trade protectionism involves government policies designed to shield domestic industries from foreign competition, often through measures such as tariffs, quotas, or other regulatory barriers. These practices can help domestic producers by reducing competitive pressures but commonly result in higher prices for consumers due to reduced supply and increased costs.

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