In September 1995, Patrick Buchanan, a Republican candidate for president, proposed a 10 percent tariff on Japanese imports to the United States, a 20 percent tariff on Chinese imports to the United States, and an unspecified "social" tariff on imports from developing countries. Use the long-run model of a small open economy to graphically illustrate the impact of these trade policies on the U.S. exchange rate and the trade balance. Assume that the country starts from a position of trade balance. Be sure to label: i. the axesii. the curvesiii. the initial equilibrium valuesiv. the direction the curves shift and v. the new long-run equilibrium values.

b. Based on your graphical analysis, explain the predicted impact of Mr. Buchanan's proposed policies. Specifically, state what happens to the exchange rate, the trade balance, the volume of imports, and the volume of exports.