Question: 1 Suppose the tariff were levied solely on imported crude

1. Suppose the tariff were levied solely on imported crude. In an integrated world economy, who would be hurt? Who would benefit? Why? What would be the longer-term consequences?
2. If a $10/barrel tariff were levied on imported refined products (but no tariff were levied on crude oil), who would benefit? Who would be hurt? Why? What would be the longer-term consequences?
3. What would be the economic consequences of the combined $5/barrel tariff on imported crude and a $10/barrel tariff on refined oil products? How will these tariffs affect domestic consumers, oil producers, refiners, companies competing against imports, and exporters?
4. How would these proposed import levies affect foreign suppliers to the United States of crude oil and refined products?
5. During the 1970s price controls on crude oil-but not on refined products-were in effect in the United States. Based on your previous analysis, what differences would you expect to see between heating oil and gasoline prices in New York and in Rotterdam (the major refining center in northwestern Europe)?

The combination of weakening oil prices in the mid-1980s and the failure of Congress to deal with the budget deficit by cutting spending led some to see the possibility of achieving two objectives at once:
(1) Protecting U.S. oil producers from ''cheap'' foreign competition and (2) reducing the budget deficit.
The solution was an oil-import fee or tariff. A tax on imported crude oil and refined products that matches a world oil price decline, for example, would leave oil and refined-product prices in the United States unchanged. Thus, it was argued, such a tax would have little effect on U.S. economic activity. It would merely represent a transfer of funds from foreign oil producers to the U.S. Treasury. Moreover, it would provide some price relief to struggling refineries and encourage the production of U.S. oil. Finally, at the current level of imports, a $5/barrel tariff on foreign crude oil and a separate tariff of $10/barrel-equivalent on refined products would raise more than $11.5 billion a year in revenue for the U.S. Treasury.

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