Protectionism Blog
Thailand has high tariffs placed on imported vehicles. This tariff is at 80% under the claim that it is needed to help Thailand's economy (Phoonphongphiphat). This tariff could have effects on many different people as is illustrated in the diagram below.
Figure 1: Tariff on imported automobiles
As shown in the diagram above, before the tariff the price of automobiles is S(world). After the tariff the price rises to S(world + Tariff). Before the tariff the quanitity demanded was at Q2, but Thai producers only produced Q1 of that amount giving them a revenue of E. After the tariff they increase production to Q3 which is the new equilibrium causing their revenue to rise to E + F + A + B. Foreign producers of automobiles will be producing the rest which is the distance from Q3 to Q4, which is less than it was before. Their revenue will fall because they now pay the tariff so their revenue decreases from F+G+H to just G. Because the government is being paid by the foreign producers they are increasing their income to C which is the difference between the S(world) before and after the tariff. The domestic consumers of the good will now be forced to pay higher prices for automobiles because of the cost that is added to the importers. This will continue to be passed down through the supply chain until it eventually ends up landing on the consumers who will pay the higher costs when buying their cars or car parts.
The final affect this tariff would have would be on the world efficiency of production. Because quantity has fallen to Q4, consumer are now saving H that they would have been spending on cars before. This is money they now have to spend elsewhere, but there is now a dead-weight loss of welfare represented by D because of the loss of consumer surplus. The other impact is the amount F that is produced by domestic farmers who are producing inefficiently because they need an amount of F+B to produce it, while foreign producers could've produced it for just B. This shoes the inefficiency because more resources are being used to produce cars than are necessary.
The Thai governmet has chosen to use these protectionist measures to protect the local auto manufacturing industries. Another reason is to maintain the quality of the cars. Introducing this tariff could be beneficial to improving the competitiveness of the Thai producers. The huge tariffs that Thailand have been imposed for a long time, which has led to Thailand becoming one of the biggest car manufactureres in Asia. Japanaese companies such as Toyota and Mitsubishi have moved production to Thailand, as well as several American countries (Visram). By keeping these tariffs high Thailand may be able to remain with this status and continue to profit while excelling the the automobile industry.
Phoonphongphiphat, Apornrath. "Thai automakers desperate to keep high tariff on imported cars." Nikkei Asia. 20, February 2018.
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