Tariff Policy and Environmental Qualities of Imported Goods

Tariff is a trade measure with both of the trade and environmental effects. This article analyzes the interaction between the tariff rate and the short and long run environmental qualities of imperfectly substitutive imported goods. In the first part, we analyze the effect of changing the tariff rate on the environmental qualities of imported goods. That is, the import country government sets up the tariff rate before the foreign exporters choose their environmental qualities. If improving environmental qualities reduces the rate of decrease of consumers' marginal utilities, then a reduction in the tariff rate results in higher environ-mental qualities; moreover, the long run environ-mental qualities of imported goods will be higher. In the second part, we discuss the effect of environmental quality improvement on the optimal tariff. That is, the foreign exporters choose their environmental qualities before the home country government sets up the tariff rate. When the consumers are not environmentally conscious, whether the importance of environmental qualities is emphasized or not, it is optimal for the government to impose a lower (higher) tariff rate on the high (low) environmental quality imported goods. If the environmental quality improvement cost is sufficiently higher than the marginal pollution abatement and/ or marginal environmental damage, or if the import country government emphasizes environmental qualities, then the long run tariff rate on high environmental quality imported goods should be lower than that of the short run tariff.