Protectionism
In August, Canada announced a C$3.6 billion ($2.7 billion) tariff on US aluminum products. Before the tariff, OQ2 tons of aluminum was being consumed at a price of Pw. Domestic production was OQ1 and imports were Q1Q2. When the tariff is imposed, S (World) shifts up by the amount of the tariff to S (World) + tariff and the market price rice to Pw + T. Total Quantity demanded falls from OQ2 to OQ4 because the price has risen. Impact on domestic producers: Domestic producers increase production to OQ3 and so their revenue increases from g to g + a + b + c + h. However, the importers must pay a higher price for the imported goods. This will raise the costs to producers who need aluminum to manufacturer their products and eventually lead consumers to have to pay higher prices for such products. If the producer is an exporter, then the higher cost of imported components could reduce its international competitiveness. Impact on foreign producers: Foreign produc...