Question 19M.2.SL.TZ0.1c
| Date | May 2019 | Marks available | [Maximum mark: 4] | Reference code | 19M.2.SL.TZ0.1c |
| Level | SL | Paper | 2 | Time zone | TZ0 |
| Command term | Explain | Question number | c | Adapted from | N/A |
United States (US) tin can manufacturers seek tariff exemption on tinplate steel
- The Can Manufacturers Institute (CMI) has asked the US Department of Commerce to take away tariffs and other trade protection measures that are currently applied to imports of tinplate steel. Tinplate steel is used to make tin cans as packaging for food. The CMI represents the tin can manufacturing industry and its suppliers in the US.
- The tin can manufacturing industry accounts for the annual domestic production of approximately 124 billion tin cans. The industry employs more than 28 000 people, with factories in 33 US states, Puerto Rico and American Samoa. It generates revenue of around US$17.8 billion. The CMI claims that the tariff on imports of tinplate steel has a severe economic impact on the tin can manufacturing industry.
- Approximately 2 % of all US steel is tinplate. Currently, there is excess demand that is causing a disequilibrium in the domestic US tinplate steel market. In 2016, US demand for tinplate steel was 2.1 million tons, while domestic supply was 1.2 million tons, meaning that only 57 % of domestic demand was met by US tinplate steel producers. Not only is there a domestic shortage of tinplate steel, but also the CMI claims that there has been a noticeable decline in the quality of domestically-produced tinplate steel.
- The CMI claims that even a small increase in the price of raw materials could create a competitive disadvantage, forcing some tin can manufacturing plants to shut down. This would create structural unemployment for 10 000 workers in regionally-based factories. The CMI also claims that the tariff puts food can producers at a competitive disadvantage with other food packaging substitutes, such as plastic and glass. These substitutes are not subject to tariffs.
- According to the CMI, canned fruits and vegetables cost 20 % less than fresh food. Because of this, people on low incomes consume canned foods at a higher rate than the average American. Canned food offers a low-cost solution to feeding the nation; especially the 42 million Americans who live in low-income households. The figure includes 13 million children. The CMI further claims that tariffs, or any trade barriers, have harsh consequences for those living in relative poverty.
[Source: adapted from www.prnewswire.com, accessed 27 August 2017]
Using an international trade diagram, explain the effect of a tariff on the imports of tinplate steel (paragraph [1]).
[4]
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
The use of P and Q on the axes is sufficient for a demand and supply diagram. The world supply curve must be labelled Sw, or Sworld. A title is not necessary.
This was generally a well answered question. A few candidates addressed the welfare effects and/or impact on tax revenue, which was not required by the question. A common problem was a missing label for the world supply curves (e.g. Sw, Sw + tariff).
