19. After 7 years of negotiations, 12 countries – including the United States, J

Question

19. After 7 years of negotiations, 12 countries – including the United States, Japan, Vietnam, and 9 other Pacific Rim countries – signed the Trans-Pacific Partnership (TPP). A key feature of the TPP is the lifting of tariffs on many products traded between the member countries, ranging from agriculture to footwear. As each member country went through the process of ratifying the agreement, numerous domestic firms and collective interests voiced opposition. In the United States, New Balance was one of these opposing firms, specifically stating its disapproval of phasing out US tariffs on shoes made in Vietnam. What would a reduction of US tariffs on Vietnamese shoes do to the supply of Vietnamese shoes in the United States? What impact would this have on the equilibrium quantity of shoes sold in the United States? Would the tariff reduction cause the equilibrium price for shoes in the United States to increase or decrease? Explain.

Explanation / Answer

Vietnam is an south asian developing country with a growing population and agricultural, SME based economy, due to wide availability of cheap labour and animal species and supporting laws boosted the leather and the footware industries. The production cost of shoes made in vietnam is very low as compared to in USA, so when this shoes are imported by US, the government impose tariff to safeguard the local leather and footware industries, if this tariff is reduced then the price at which the shoes are available in the market is reduced, thus people will also start purchasing the shoes which are made in vietnam, the quantity of shoes sold increases and the equilibrium will be change wit respect to the new prices, the equilibrium price will increase because a more number or quantity is sold, but unfortunately this profits are earned by the companies which are registered in vietnam, thus causing a large flow of US dollars to the vietnamese economy.  

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