Question 19M.2.HL.TZ0.d
| Date | May 2019 | Marks available | [Maximum mark: 8] | Reference code | 19M.2.HL.TZ0.d |
| Level | HL | Paper | 2 | Time zone | TZ0 |
| Command term | Evaluate | Question number | d | Adapted from | N/A |
Canadian drywall tariffs will continue
- Recently imposed Canadian tariffs on drywall imports have pushed up the cost of building a new home by thousands of Canadian dollars (CA$) in the last four months. Drywall is a pre-made wall section that is used in the construction industry for building houses. Doubt as to whether the tariffs will remain is causing uncertainty for building firms, drywall manufacturers and homeowners.
- For now, higher prices will continue following a ruling by the Canadian International Trade Tribunal (CITT) this week. The tribunal found that United States (US) firms had been dumping drywall products into Western Canada over the past few years, harming the Canadian drywall industry.
- The ruling will end preliminary tariffs of up to 276 % imposed by Canada on imports of drywall from the US. However, they will be replaced by permanent, variable tariffs that would be imposed on imported drywall products whose prices fall below the minimum prices determined by the CITT.
- “The preliminary tariff was very damaging to homebuilding,” said a building industry spokesperson. “Not just homebuilding, but hospitals, commercial buildings, indeed any new construction,” he said. “It’s a cost that someone had to pay for. It lowered the profits of house builders.” It has been estimated that the immediate sharp increase in variable costs, following the imposition of the preliminary tariff, resulted in an extra CA$3000 to CA$5000 on the cost of building some homes.
- The preliminary tariffs were imposed after a dumping complaint by CertainTeed Gypsum Canada (CTGC), the last drywall manufacturer in Western Canada. CTGC has three major production sites and two gypsum quarries. Gypsum is a main component of drywall.
- A CTGC spokesperson had said previously that its plants and quarries could be closed, at the cost of 200 jobs, if the dumping of US drywall products continued. However, since the preliminary tariffs were imposed, the firm has announced that it has hired 30 new employees.
- In a separate report, the CITT found that the preliminary tariffs had been “substantially reducing competition” in Western Canada, to the detriment of Canada’s homebuilders. In response, supporters of the tariff have suggested that revenue from the tariffs may be used to help areas that lost large numbers of homes and other structures in devastating forest fires.
[Source: adapted from Drywall tariffs will continue, www.kamloopsthisweek.com, 5 January 2017]
Using information from the text/data and your knowledge of economics, evaluate the effect of the tariff on drywall on different stakeholders.
[8]
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
Do not award beyond level 2 if the answer does not contain reference to the information provided.
Command term
“Evaluate” requires candidates to make an appraisal by weighing up the strengths and
limitations. Opinions and conclusions should be presented clearly and supported with
appropriate evidence and sound argument.
Responses may include:
- definition of stakeholders
- definition of tariff.
Consumers of drywall (Canadian building firms):
- will face higher costs, and thus reduced profits (paragraph [4])
- fall in the production of buildings (paragraph [4])
- may cause unemployment.
Domestic producers of drywall:
- will receive higher prices (paragraph [3]) and thus more profits
- increase in output and sales
- increase in employment (paragraph [6])
- supporting monopoly power (paragraph [5]).
US producers of drywall:
- higher costs
- reduced sales
- lower profits and possibly a decrease in employment.
The Canadian government:
- increased revenue (paragraph [7])
- possible retaliation from the US.
Canadian economy:
- reduction in competition (paragraph [7]), leading to inefficiency
- inflationary pressure in the housing market (paragraph [4]).
Any reasonable evaluation.
To reach level 3, students must be aware of the particular situation in the Canadian drywall market on specific stakeholders, not just present an evaluation of tariffs in general.
This question offered candidates the opportunity to develop points made in parts (c) and (d) as well as examining the impact on other stakeholders.
Use of text: The best candidates used the text appropriately in support of economic analysis. Less successful candidates relied heavily on quotes from the text with little in the way of development or value added.
Analysis: While most candidates identified the relevant stakeholders, too often they produced a generic list of the effects of tariffs on stakeholders. Many candidates took a descriptive approach, adding little value to the content of the text. Where there was analysis sometimes, it often lacked depth, relying on statements without explanation/reasoning. Such an approach is unlikely to achieve more than L1. There were, however, some outstanding answers, highlighting clear understanding coupled with a sophisticated approach.
Evaluation: There was limited effective evaluation in many of the answers. Many candidates appeared to think that evaluation involves summarising the points made in the body of the answer. On occasions when evaluating many candidates did make realistic judgements eg ''30 new jobs will significantly reduce Canada's unemployment rate''. There were, however, examples of outstanding evaluative comment.
