User interface language: English | Español

Date May 2019 Marks available 4 Reference code 19M.2.SL.TZ0.1
Level Standard level Paper Paper 2 Time zone Time zone 0
Command term Explain Question number 1 Adapted from N/A

Question

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]

Define the term excess demand indicated in bold in the text (paragraph [3]).

[2]
a.i.

Define the term structural unemployment indicated in bold in the text (paragraph [4]).

[2]
a.ii.

Using a supply and demand diagram and data from the text, explain how a “disequilibrium in the domestic US tinplate steel market” would occur if there were no imports (paragraph [3]).

[4]
b.

Using an international trade diagram, explain the effect of a tariff on the imports of tinplate steel (paragraph [1]).

[4]
c.

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

[8]
d.

Markscheme

a.i.

a.ii.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

For a supply and demand diagram, the vertical axis should be price or p. The horizontal axis should be quantity or q. A title is not necessary.

b.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

The use of P and Q on the axes is sufficient for a demand and supply diagram. The world supply curve must be labelled Sw, or Sworld. A title is not necessary.

c.

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:

Possible impacts:

d.

Examiners report

Unfortunately, most candidates did not reach L2. Those who were awarded L1 often referred simply to demand exceeding supply. An explanation that quantity demanded was greater than quantity supplied would have added precision to the definition.

a.i.

Most candidates exhibited knowledge of one factor which could contribute to structural unemployment. Some confused this type of unemployment with cyclical or frictional employment.

a.ii.

Surprisingly, many candidates struggled with this question. A lot of diagrams illustrated a change in equilibrium, with supply or demand shifting, rather than a disequilibrium. Many candidates also failed to make use of the text. Some centres expressed concerns that use of data was required in a question part other than (d). However, the purpose of (b) and (c) remains application of simple concepts to the text/data provided.

b.

This was generally a well answered question. A few candidates addressed the welfare effects and/or impact on tax revenue, which was not required by the question. A common problem was a missing label for the world supply curves (e.g. Sw, Sw + tariff).

c.

“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.

d.

Syllabus sections

Last exams 2021 » Section 3: International economics » 3.1 International trade » Restrictions on free trade: Trade protection » Types of trade protection
Show 30 related questions
First exams 2022 » Unit 4: The global economy » 4.2 Types of trade protection » 4.2.1 Tariffs
Last exams 2021 » Section 3: International economics » 3.1 International trade » Restrictions on free trade: Trade protection
Last exams 2021 » Section 3: International economics » 3.1 International trade
First exams 2022 » Unit 4: The global economy » 4.2 Types of trade protection
Last exams 2021 » Section 3: International economics
First exams 2022 » Unit 4: The global economy
First exams 2022
Last exams 2021

View options