Question

The U.S. International Trade Commission's committee in charge of the global safeguard investigation involving imports of steel has announced its recommendations to be forwarded to the president. Of the 33 steel product categories investigated, 12 have experienced a significant increase in the quantity of imported steel, causing serious injury or the threat of serious injury to the U.S. steel industry. The commission has recommended that the president impose a 20 percent tariff on these 12 categories of imported steel. If the president follows the commission's recommendations, what will happen to the supply of foreign steel in these categories? What impact will this have on the equilibrium quantity of steel sold (in these categories) in the United States? Will the equilibrium price for these categories of steel in the United States market increase or decrease? Explain.

Short answer

In this case, the president's measures would lead to a fall of equilibrium quantity and a rise of the equilibrium price of steel.

Step-by-step solution

The equilibrium

The equilibrium situation implies equality condition of demand and supply of a merchandize. The situation changes with government decision also

Explanation the equilibrium categories of steel in united states market

If the President follows the Commission's recommendations, the supply of foreign steel in these categories will decline. Allocations and tariffs are tools to help domestic producers. But they also affect social welfare by raising prices and reducing the number of goods supplied. After the import restrictions, there is a shortage of goods, and prices have to be raised. Thus, the President's actions will reduce steel equilibrium while a price rise will occur.