Barriers to Trade Scenario

You own Steelco, a U.S.-based company that produces steel. You and other U.S.-based steel producers have been losing customers to Chinese producers, who charge a lower price for their steel. One of the other steel companies convinced the U.S. government to impose a tariff on Chinese steel and you want to identify how the tariff will impact how much steel you should produce.

Information:

• Chinese Steel
  • Current price of Chinese steel per metric ton = $600
  • Tariff = $500 added per metric ton of Chinese steel imported into the United States
  • Price of Chinese steel per metric ton after the tariff = $1,100
  • The current quantity of Chinese steel imported from China to the United States each year = 2 million metric tons
• All other U.S. steel producers
  • Without the tariff and with China producing 2 million metric tons of steel at $600 all other steel manufacturers would produce = 1 million metric tons of steel.
  • Without China in the market, it is estimated that all other U.S. steel manufacturers will produce 2.5 million metric tons of steel at an equilibrium price of $900/metric ton of steel.

1. Draw a supply and demand curve for U.S. produced steel before and after the tariff.
2. What is the estimated equilibrium price of U.S.-produced steel without imported Chinese steel?
3. What is the estimated quantity of U.S.-produced steel without imported Chinese steel?