Is the U.S. Import Tariff on Brazilian Ethanol Justifiable?
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The United States has used tax credits and mandates to promote ethanol production. To
offset the tax credits received by imported ethanol, the United States instituted an import
tariff. This study provides insights about the quantitative nature of a U.S. trade policy that
would establish a free-market price for ethanol, given the U.S. ethanol mandate and tax
credit. The theoretical results from a horizontally related ethanol-gasoline partial
equilibrium model show that the United States should provide an import subsidy rather
than impose a tariff. The empirical results quantify that this import subsidy is 9 cents,
instead of a 57 cent import tariff, per gallon of ethanol.