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Question 19M.2.SL.TZ0.1d

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Date May 2019 Marks available [Maximum mark: 8] Reference code 19M.2.SL.TZ0.1d
Level SL Paper 2 Time zone TZ0
Command term Discuss Question number d Adapted from N/A
d.
[Maximum mark: 8]
19M.2.SL.TZ0.1d

United States (US) tin can manufacturers seek tariff exemption on tinplate steel

  1. 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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]

(d)

Using information from the text/data and your knowledge of economics, discuss possible economic impacts of the tariff on tinplate steel.

[8]

Markscheme

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
“Discuss” requires candidates to offer a considered and balanced review that includes a range of arguments, factors, or hypotheses. Opinions or conclusions should be presented clearly and supported by appropriate evidence.

Responses may include:

  • definition of tariff
  • international trade diagram to explain impact of the requested tariff on consumers, producers, government, importers and efficiency (paragraph [1]).

Possible impacts:

  • some candidates may question the claims of the CMI, noting that they have a vested interest in tinplate steel being exempted from a tariff (paragraph [1])
  • severe economic impacts on the tin can manufacturing industry (paragraph [2])
  • job losses and potential structural unemployment in the tin can industry (paragraphs
    [2] and [4])
  • inefficient domestic tinplate steel producers are supported (paragraph [3]), causing a misallocation of resources
  • the inferior “quality of domestically-produced tinplate steel” (paragraph [3]) may result in a decline in quality and higher price of final products
  • tariff allows domestic steel tinplate producers to maintain higher revenues / incomes to allow them to compete with higher quality imports (paragraph [3])
  • higher input prices for can manufacturers may force closures of some can producers and a consolidation within the tin can industry (paragraph [4])
  • tariff will increase input costs for can manufacturers requiring tinplate steel as an input (paragraph [4])
  • tin can producers disadvantaged when substitute packaging is not exposed to a tariff (paragraph [4])
  • impact on economic growth in communities dependent on tin can manufacturing (paragraph [4])
  • impact on low-income households as tariffs are regressive taxes and food is a staple; low income households spend a higher proportion of their income on canned food (paragraph [5])
  • trading partners might retaliate by imposing their own protectionist measures
  • tariffs provide a source of tax revenue that can be reinvested
  • as domestic production can only meet 57% of domestic demand, it might take a substantial increase in price to resolve the shortage (paragraph [3])
  • may affect the competitiveness of US exports, which require tin-plate steel as a factor input. 
Examiners report

“Discuss” requires candidates to offer a considered and balanced review that includes a range of arguments, factors or hypotheses. Opinions or conclusions should be presented clearly and supported by appropriate evidence.

As for many past questions on tariffs, answers were often generic, going through the tariff diagrams and the ‘standard’ impacts on domestic production, imports, the price, etc. In such cases, the tariff diagram was over-elaborated on and lacked application to the text. It was not uncommon for answers to cite the infant industry argument, which was clearly not relevant in this case. Such answers reflect economic analysis but limited application to the text and would generally remain in level 2. Another common problem which kept answers in level 2 was that many candidates simply repeated the text or only slightly expanded upon what was presented.

A level 3 answer is one where the candidate applies economic analysis to the text. In this case, some good responses considered (with or without reference to an international trade diagram) that the tariff would increase the price of tinplate steel and commented that this could contribute to cost-push inflation but since only 2 % of all American steel was tinplate, the impact would not be significant.