Let's Assume That Two Countries Have Imposed High Tariffs on Each

question 29

Essay

Let's assume that two countries have imposed high tariffs on each other's products and services to the point where all trade between the two countries has disappeared. Assume a newly elected member of parliament in one of the countries makes a proposal for unilateral tariff reduction regardless of whether the other country wishes to follow suit. Explain why such a policy change would actually be a good idea.

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Definitions:

Hydrocarbons

Organic compounds consisting entirely of hydrogen and carbon, used as fuels, solvents, and as raw materials for various chemicals.

Incentive-based Regulation

A regulatory approach that aims to encourage desired behaviors through financial incentives, rather than through mandates or prohibitions.

Command-and-control Regulation

A regulatory approach where the government sets specific limits or standards for various aspects of business operations to control or reduce negative externalities.

Opportunity Cost

The relinquishment of potential profits from various alternatives upon choosing a certain one.