Tariffs: International Trade and Tariff
At that time, the principal function of tariffs is tax collection. By contrast, a country with weak economy and lying in a disadvantageous position tends to pursue policy protectionism. Under such circumstances, Tariff protection may become the most important or even major function to governments. So high tariffs will barrier the imported goods and hinder the development of international trade. Moreover, with the heavy government intervention in the economy, tariff has been endowed with the function of economic regulation.
Thus, tariffs have become an important macroeconomic policy.It follows that countries’ tariff level will directly affect their interests in the foreign trade. The essay argues that the government tariffs have a significant impact on imported goods in terms of changing their quantity, in addition to providing benefits to the national economy such as protecting domestic products and adjusting economic growth rate. Despite the disadvantages of tariffs on damaging customers’ interests and increasing smuggling cases, it will have positive future trends.
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In the first place, one Of the most important impacts of tariffs is the influence on the quantity of imported goods.On the one hand, levying tariffs may reduce the quantity of imported goods (Huh & Us, 2007). Zigzaggingnine and (2006) discover that a quota about tariffs on imported goods, a straight quantitative limitation on the amount of good units that can be imported during a specific time period, is the simplest and most direct form of tariffs.
They assume that quotas are combined when utilization rates of imported commodity reach 90% and more, which follows that quotas control the quantity of imports. Moreover, their discovery seems accurate, for it is supported by a satisfying del (Links & Race, 2002).It follows that the tariff will inhibit the flow of a certain product across the border as a tax on imports, and It will now cost more to move the product from the exporting country into an importing country. As a result, the supply of this product to the importing country market will fall inducing an increase in the price. Assuming that the product is homogeneous and the market is competitive, the price in importing country, both domestic producers and imports will rise in price. Therefore, the higher price will reduce import demand. On the contrary, reducing tariffs increases the imports’ quantity.
A data from China shows that China reduced it tariff rates when china joined the World Trade Organization (WTFO) in December 2001, with repealing the non-tariff barriers (Nets) policy, and accelerating access of foreign capital into China’s capital market. The aim of Nets is to restrict imports to protect the domestic market and the development of domestic industry to a certain extent. All these have facilitated the rapid development of China’s participation in the international division of labor. Nominal tariff rates in 1 995 were 26% above those in 2004. Imports have increased 3. 9 times (Huh & Us, 2007).Consequently, imposing tariffs on imports is as a means to limit the imports of goods to all countries.
Regarding the impact of tariffs, Tariffs provide an array of benefits, especially to protect domestic products during price adjustment. Garbage (2003) claims that import tariffs ostensibly give local manufactures an advantage over overseas imports. There is a protective tariff, which is designed to insulate domestic producers from competition. It may help to improve Garbage’s theory that imported goods make them more expensive compared with similar products made by the nation’s domestic producers.For example, “If tariff rate is a 20 percent for domestic ad valor and the imported product price is $200, the duty is $40. If the product’s price increases, say, to $300, the duty collected rises to $60; if the product price falls to $100, the duty drops to 520” (Garbage, 2003, Pl 08). Therefore, Moore and Morris (2012) further explain that a nation imposes tariffs on imported goods to make them costlier and to protect domestic producers and employees making those same products, if imported Product A is more expensive than domestically produced Product AAA.
Assuming that all other conditions are equal, they discover that consumers tend to choose Product Moreover, one of the most distinct advantages of tariffs is that governments can be benefited from adjusting the economic growth rate. Economists tend to regard tariffs on imports as an economic leverage to adjust the development of production and economy, and they discover that a number of high tariff countries are high growth countries (Lb, 2000; Wackier 2001 Firstly, Lee (201 1) argues that the growth rate is raised by a higher tariff.A higher import tariff on the consumer goods in the domestic country may boost (reduce) the long-run economic growth rate when the foreign (domestic) county has an absolute advantage in the investment good. The reason behind this may be explained as follows. If a domestic country imports the consumer products, a higher tariff on these products leads to higher domestic price and thereby the firms may reallocate resources to this sector. Hence, “the supply rise of the consumption good in the world market lowers he international price of this good and then Foreigners firms reallocate resources to the investment sector’ ‘(Lee, 201 1 , p. 61 Additionally, Silvia (201 1) has reconstructed historical data on tariffs and trade for 23 countries based on the relationship between tariff and trade growth to demonstrate that tariffs adjust the national economic activities through tax rate.
For example, governments use tariffs as tools to balance supply and demand, for tariffs can change structure of imports and exports to settle market prices. However, the empirical analysis of the relationship between tariffs and economic growth has generated mixed results. Disagreement persists among economists on how a country’s tariffs’ policies affect its economic growth rate.There are several negatives of tariffs such as damaging interests of consumers and increasing smuggling cases. In the first place, tariffs increase the price of imports and reduce the price of export commodities. This makes consumer face challenge and consumers’ interests may be compromised by the increasing price caused by high tariffs. Tariff opponents argue that the costs of tariffs cannot be ignored.
These costs imposed has increased cause of high tariffs imposed and consumers are forced to either buy fewer goods or spend more on these goods.The price increase can be considered as a reduction in consumer income (Wackier & Welch, 2005). Meanwhile, this theory can be demonstrated that higher import prices mean higher prices for goods by using a practical example. Roadman (2007) assumes that the price of steel may be inflated due to tariffs, individual consumers pay more for products using steel, and businesses pay more for steel that they use to make goods. Overall, tariffs and trade barriers tend to be pro-producer and anti- nonuser. The other disadvantage is that higher tariffs may cause vast levels of smuggling if they are set at unreasonable levels.Same commodities, their prices are huge difference from at home and abroad due to high tariffs.
Homes prices may be doubled or even more than double compared to Barbados. Therefore, it seems that the price difference makes smuggling become one of the most profitable business (Ghana, 2001 Furthermore, Cacao (2005) demonstrates that tariffs increase smuggling cases because high tariffs seriously distort price mechanism which causes market disorder. He covers that it is generally believed that smuggling is profitable if taxation rate are above 20%.For example, if the tariff on Product A is set at 95% (causes Product A in domestic is much costly than in other country) then it is likely that people will try to sneak Product A into the country illegally. As mentioned before, although all disadvantages that tariffs provide have one thing in common – high tariffs, tariffs will have positive future trends in terms of tariff concession in developing countries (Docs) and tariff increase in developed countries. Primarily, Docs will appeal for tariff concession in the true, especially agricultural products.One of the reasons is that many agricultural products are exported as primary commodities and higher taxes on processed products tend to increase demand for domestic and imported primary’ products.
This shows that the importance of disaggregating primary products when analyzing agricultural trade liberalizing. Therefore, the DC would support a trade agreement of tariff cut (Gibson, Waning, Whither & Bowman, 2001 In addition, Taming, Gillian and Philippe (2012) also argue that DC is a ‘free trader in primary agricultural products.When substitutions in consumption and production are limited due to important Nets, it is shown that reducing domestic support while holding fixed tariffs decreases the Doc’s welfare. Under the tariff liberalizing scheme, however, welfare initially decreases, but it increases near the end of the process. There are many beneficial trade agreements, but Docs all advocate reductions in agricultural tariffs. Consequently, Tariff concession is likely the first-best policy of the world and the Doc’s perspective.With respect to developed countries, however, they tend to raise tariff rate ND tariff barriers compared to Docs (Gibson et al.
, 2001). Researches claim that governments have used tariff protection and tariff barriers as tools to stimulate domestic demand because of the financial crisis. They also discover that the impact of crisis on developed countries is far more negative than Docs, for the main developed countries are suffering from recession and decline inning of their trade. Furthermore, Roadman (2007) uses examples to show that developed countries are now under tariff protection policy.He claims that Ignited States, European Union and Japan and other developed Mounties, their imports and exports growth rapidly drop below the world average level, while developing countries imports and exports remain steady. Therefore, due to structural differences between developed countries and developing countries in economic growth rate, developed countries are inclined to raise tariffs and build tariff barriers to protect their trade. In conclusion, tariffs have a significant impact on quantity of imports.
The changes of tariffs’ rate directly refer to the floating of import quantity.Charging tariffs may reduce the quantity while decreasing tariffs may increase t. Therefore, the tariffs have been one of the core content of nations’ trade. It follows that countries’ tariff level will directly affect their interests of foreign trade. As a consequence, governments may benefit from tariffs by protecting the domestic industries and advancing the economic efficiency due to high tariffs. However, tariffs are not beneficial to everyone. High tariffs may have consumers’ interest damage and also increase the smuggling cases.
Therefore, in the future, governments Of Docs may Pleasure tariffs concession policy to increase their national welfare. While some developed countries, they may continue to impose tariffs to stimulate domestic demand due to the financial crisis. However, globalization has become an irreversible trend compared with rapid growth of international trade, so tariff policies in different countries play significant roles not only in domestic economy, but in the international order as well. Therefore, the formulation of tariff policies which corresponds to their own benefits should be given the priority by their own governments.