The us wants to make progress on free trade agreement and

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Reference no: EM13394129

The U.S. wants to make progress on this free trade agreement and argues that freer trade is necessary because the effective rate of protection in the European auto industry is actually much higher than the nominal rate of protection. Assume that the nominal tariff rate on autos is 30%. European producers can import automobile engines at a tariff rate of 10%. The value of engines relative to the whole car is 20%.

a) Calculate the effective rate of protection and evaluate the claim.

b) As a compromise, the EU suggests they would decrease the tariff rate on cars to 25%, while abolishing all import tariffs on auto engines. Would that compromise be beneficial for the U.S.?

Reference no: EM13394129

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