Tuesday, March 17, 2009

Mexico Raises Tariffs on US Exports

Mexico has just announced that it will raise tariffs on about 90 US industrial and agricultural products exported by the US to Mexico. Another year, another questionable economic policy. The Mexican government seems to be saying, hey let's raise prices to our citizens!

From Prin. of Micro, we know that tariffs are a bad idea, since it increases the deadweight loss to society, in other words - decreases overall economic well-being. Let's have a quick refresher why by looking at how this will affect Mexican consumers and producers.

An increase in tariffs reduces Mexican consumer surplus (or Mexican consumers economic well-being) it increases Mexican producer surplus (or Mexican producers economic well-being) and increases Mexican government revenues. So two out of three is not bad. The problem as demonstrated in class is that the losses by consumers from an importing country is greater than the gains to producers and the government.

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