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You are an adviser to the government of Argentina
You are an adviser to the government of Argentina. Argentina is considering placing a tariff on imports of cotton. Please prepare a report for the president that evaluates this proposal based on the criteria listed below. you may for the purpose of this exercise that the import tariff has an effect equivalent to closing off trade in cotton.
A) why would Argentina want to limit imports of cotton? what does this suggest about the natural free trade pattern of specialization in Argentina. i.e. would we expect that it would be a net importer or exporter? is Argentina likely to have a comparative advantage in the production of cotton?
B) which group(s) within Argentina will likely support this tariff? which will oppose it? please justify you answer by citing specific models learned in class.
C) will the country as a whole be better or worse off with the tariff? Please comment on what each of the 5 models we've learned in class would say about this issue.
Expert Solution
A) Usually a country places a high tariff on a commodity that they are trying to protect in their home country. In this case, it seems that Argentina wants to protect and encourage the domestic cotton farmers. Because Argentina feels that their domestic producers are not competitive with foreign imports, this indicates that at present they are a net importer of cotton. Because other countries are evidently able to not only produce cheaper cotton, but ship it to and sell it in Argentina and still make a profit, all at a lower price than domestic growers, indicate that Argentina does not have a comparative advantage growing cotton.
B) Cotton growers would support the tariff and producers of cotton fabric and clothes would oppose it as the cost of their raw material would increase. It would increase by the amount of the tariff, at least.
C) The country as a whole will be worse off as it tries to divert energy and resources developing an industry that most likely is not the most efficient and competitive for Argentina. These energy and resources should be spent developing higher value industries where Argentina has a comparitive advantage with the rest of its trading partners.
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