Tariffs and Regulations
Tariffs represent a customs duty which is the indirect tax levied on the import or export of goods in international trade. This is, also, a kind of consumption tax. A duty levied on goods being imported is referred to as an import duty. Similarly, a duty levied on exports is called an export duty.
Tariffs are created to protect the country’s industries and economies development. The following reasons explain the tariffs usage.
1. PROTECTING DOMESTIC EMPLOYMENT
The levying of tariffs often depends on the political situation in the country. The possibility to increas competition from imported goods can threaten local industries. These domestic companies and local manufacturers may reduce work places and deliver production abroad to cut costs. This can bring to higher unemployment and a less happy electorate. The unemployment reason often shifts to domestic industries complaining about cheap foreign labor as well as how poor working conditions and lack of international regulation allow foreign companies to produce goods more cheaply for a short period of time. Regarding the economics, countries are going to continue the goods production until they no longer have any competitors on the international level.
2. PROTECTING CONSUMERS
The state is able to establish a tariff on products that it feels could endanger its population. For example, South Korea may placed a tariff on imported beef from the United States as it thinks that the goods could be tainted with disease.
3. INFANT INDUSTRIES
The use of tariffs in order to protect local industries can be seen by the Import Substitution Industrialization (ISI) strategy employed by many developing nations. The state of any country with a developing economy will levy tariffs on imported goods in such industries, where it wants to foster growth. As a result, this increases the prices of imported goods and creates a domestic market for domestically produced goods. In such a way, the country protects the industries from being forced out by more competitive pricing. Export and Import tariffs helps countries to shift from agricultural products to finished goods.
4. NATIONAL SECURITY
The export and import tariffs are used in order to protect certain industries that are deemed strategically important, such as those supporting national security. Such industries as Aerospace and Defense are often viewed as vital to state interests, and often require significant levels of protection.
5. RETALIATION
Countries may establish tariffs as a retaliation technique if they think that a trading partner is not secure and has not played by the rules.
The benefits of tariffs depend on the industry they are related with. As a tariff is considered to be a definite tax, the government will see increased revenue as imports enter the domestic market. Local industries and manufacturers benefit from a reduction in competition, since import prices are artificially inflated. Regarding the individual and business consumers - higher import prices brings to higher prices for goods. If the price of steel is inflated due to tariffs, individual consumers pay more for products using steel, and businesses pay more for steel that they use to make goods. In short, tariffs and trade barriers tend to be pro-producer and anti-consumer.
The influence of tariffs on businesses, consumers and the government shifts over time and depends on the country’s economy. In general, while establishing short term tariffs, higher prices for imported and exported products can reduce consumption by individual consumers as well as by businesses. During this period of time, businesses profit and expand globally. The government follows the increase in revenue from duties. In the long term, businesses may see a decline in efficiency due to a lack of competition, and may also see a reduction in profits due to the emergence of substitutes for their products. For the government, the long-term effect of subsidies is an increase in the demand for public services, since increased prices, especially in foodstuffs, leave less disposable income.
The importance of tariffs in international trade has declined in modern times. The main reasons for the decline is the introduction of international organizations designed to improve free trade, such as the World Trade Organization (WTO). This types of organizations create barriers for a country to levy international tariffs and taxes on imported and extorted goods. As a result, countries have concentrate their trade on non-tariff barriers, as quotas ans export restraints.
Free trade is beneficiary for customers and international consumers as it increased the choice and reduced prices. Unfortunately, due to global economy development, a large number of countries impose tariffs and other trade barriers to protect their local industries.
