Futility of Targeted Fish Tariffs and an Alternative

Abstract

Targeted tariffs are a common tool used by importing countries to protect domestic fish producers. Unfortunately, such tariffs, in general, are ineffectual. The reason is twofold. First, fish tend to be homogenous across supply sources, which means a tariff on one supply source acts as an implicit import subsidy to other supply sources. Second, source-specific import shares tend to be small, which means that the import demand elasticity is large, both absolutely and in relation to the import supply elasticity. As a consequence, most of the tariff is borne by foreign producers rather than domestic consumers. Indeed, analysis of a $0.50/lb. tariff on catfish imports from Vietnam indicates that the tariff would increase the US price by at most $0.17/lb. in the short run and $0.11/lb. in the long run. In light of this, and the potential for retaliation, a better policy option may be market promotion. To examine this, an expression is developed to indicate the optimal promotion levy. Applying the expression to catfish, results suggest that a levy of between 2% and 4% on imports would be optimal in the sense that the induced promotion expenditure would maximize foreign producer surplus. As a bonus, domestic producer surplus would increase in that spending levels more nearly match the economic optimum.

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