French Tariffs on Automobiles
The Effect of French Tariffs on Automobile Imports
Specific Example: Since 2019, France has imposed an average tariff of nearly 4% on all automobile imports. Virtually all tariffs on imports in France (and in most of the EU) operate on the ad valorem basis
Prior to the implementation of this tariff, the quantity of cars consumed in France was Q2 at a price of Pw. The world supply curve was then shifted upwards by the amount of the tariff (S world +tariff). This shift caused market price to rise to Pw +T, thereby leading total quantity demanded to fall from Q2 to Q4.
Impact on Domestic (French) Producers of Cars: Domestic producers will increase production to Q3 which will cause their revenue to increase from just g to g+a+b+c+h. Since import prices are artificially inflated by the tariff, domestic industries benefit from a reduction in competition. While tariffs may be viewed in a positive light in terms of their ability to "protect" domestic producers, the lack of competition could potentially slow innovation.
Impact on Domestic (French) Consumers of Cars: Consumers will be drawn to the cheaper prices of domestically produced cars, but there will be a dead weight loss of welfare because of the loss of consumer surplus. After all, consumers are now keeping the money (k) that they would have spent on cars (so the loss of consumer surplus = f). Consumers who wish to purchase cars that have been imported, however, will face higher costs.
Impact on Foreign Producers of Cars: Foreign producers will supply the remainder of cars (Q3 to Q4). Their revenue will fall from h+i+j+k to only i+j due to their need to pay the tariff to the government. Foreign produced cars will now be less competitive in the market since the higher cost of importing the good into the country will be passed down to consumers.
Impact on French Government: The French government will benefit from the tariff by generating an increase in revenue that is represented by d+e.
Impact on World Efficiency in Production of Cars: World efficiency suffers from the imposition of tariffs on cars, as the product is now being produced by inefficient domestic automobile manufactures rather than to efficient foreign automobile producers. After all, foreign producers can produce Q1Q3 amount of cars at a minimum revenue of h, while domestic producers require a minimum revenue of h+c. C is representative of the loss of world efficiency (dead-weight loss of welfare) since the world's resources are being inefficiently allocated. More resources are being used to manufacture cars than necessary.
Why is government implemented this protectionist measure (tariff) on cars?: While tariffs are often used as an anti-dumping measure, this relatively small-scale tariff leads me to think otherwise. This tariff may be simply a result of how France simply adheres to the EU's common external tariffs for imports; the country itself may not have a specific issue it is working to mitigate. Hence, this low tariff is indicative of France's lack of issues with automobile imports from other countries. Perhaps France is trying to offer some protection for local automobile manufacturing industries. The socialist government of France has actively worked to maximize the employment of free trade principles, but apparently there was a recession in the 1980s that gave rise to some protectionist measures. Maybe this tariff is simply an outdated "leftover" from this situation.
Note that Q3 is not on your diagram.
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