Recently, there have been instances of large open economies imposing significant tariffs on imports from their trading partners. Details of the two such cases are provided below.

1. Starting from a most favoured nation (MFN) average tariff rate of 3.1% in 2017, the US increased its tariff on Chinese exports to 21% by January 2020. This was carried out by a series of tariff hikes under Section 301 from the beginning of 2018.

2. In May 2020, the Commerce Ministry of China ruled that Australia had indulged in dumping and subsidisation of barley exports to China and imposed a combined 80.5% tariff on Australian

barley (73.6% anti-dumping duty and 6.9% countervailing duty).

(a) Based on trade theories , discuss the possible explicit and implicit reasons that may explain the decisions by the US and Chinese governments to implement such a sharp increase in their tariff rates.

(b) What are the likely impacts of the higher tariffs on the different sections of the economy in the importing and the exporting country? Provide a brief explanation for each case.