TRADE TARIFFS, REASONS AND EFFECTS

Trade tariffs are taxes or duties imposed on imported or exported goods, and they can take various forms. The type of tariff applied often depends on the specific goals of the government implementing them. Here are some common types of trade tariffs:

These types of tariffs can be used individually or in combination, depending on the economic, political, and strategic objectives of the government implementing them. Tariffs play a significant role in international trade policies and can influence trade patterns, economic competitiveness, and global supply chains.

Understanding the different types of trade tariffs is essential for businesses, policymakers, and economists, as they impact the cost and availability of goods in domestic markets and influence international trade relations.

Types of trade tarrifs

  • Ad Valorem Tariff:
    • This type of tariff is levied as a percentage of the value of the imported or exported goods. The term “ad valorem” is Latin for “according to value.” Ad valorem tariffs are based on the assessed value of the goods.
  • Specific Tariff:
    • Specific tariffs are fixed or specific amounts of money imposed on a certain quantity or unit of the imported or exported goods. The tariff remains the same regardless of the value of the goods.
  • Compound Tariff:
    • A compound tariff combines elements of both ad valorem and specific tariffs. It includes a fixed amount plus a percentage of the value of the imported or exported goods.

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  • Revenue Tariff:
    • The primary objective of a revenue tariff is to generate revenue for the government. The tariff is imposed on imported goods to raise funds for public expenditures rather than to protect domestic industries or influence trade patterns.
  • Protective Tariff:
    • Protective tariffs are designed to protect domestic industries from foreign competition. These tariffs raise the cost of imported goods, making domestic products more competitive in the local market.
  • Prohibitive Tariff:
    • A prohibitive tariff is set at such a high rate that it effectively prohibits or severely restricts the importation of certain goods. This measure is often used to protect domestic industries or for strategic reasons.

  • Tariff Rate Quota (TRQ):
    • A tariff rate quota combines elements of a quota and a tariff. It allows a certain quantity of goods to be imported at a lower tariff rate, and any quantity beyond the quota is subject to a higher tariff.
  • Dumping Duty:
    • Dumping occurs when a country exports goods to another country at a price lower than its domestic market price or production cost. Dumping duties are specific tariffs imposed to counteract the negative effects of dumping.
  • Countervailing Duty (CVD):
    • Countervailing duties are imposed to offset subsidies provided by foreign governments to their domestic industries. The duty aims to level the playing field and prevent unfair competition.

  • Environmental Tariff:
    • An environmental tariff is designed to address environmental concerns associated with the production or consumption of certain goods. The tariff aims to discourage the importation of goods with negative environmental impacts.
  • Retaliatory Tariff:
    • Governments may impose retaliatory tariffs in response to unfair trade practices or trade barriers implemented by another country. This is done to protect the interests of the imposing country and encourage compliance with trade agreements.

TARIFFS OR RESTRICTIONS TO TRADE

Definition: Tariffs are taxes or duties imposed on imports and exports by the government of a country. The idea behind tariffs is to restrict the volume of trade or improve the international terms of trade.

Reasons for imposition of tariffs or restriction of trades

The reasons countries impose tariffs or restrictions on international trade include the follow:

  •  To protect infant industries: Tariffs are imposed to protect infant industries from undue competition with foreign firms.
  •  Generation of revenue: Tariffs are also imposed to generate revenue for the country. Many countries derive their revenue from import and export duties.
  •  To prevent dumping: Tariffs are imposed to prevent dumping of goods from foreign countries. This is to prevent foreign goods from being sold at prices lower than the home price.
  •  To improve balance of payments deficit: By imposing tariffs on imported goods, the unfavourable balance of payments can be corrected because importation will be discouraged.

basic reasons why nations introduce tariff restrictions

  •  Retaliatory measures: This can be used in retaliation against countries which impose taxes on their imports.
  • To prevent importation of dangerous goods: Dangerous or harmful goods
    from other countries are prevented from being imported, through restriction.         
  •  Employment generation: Countries imposed tariffs to encourage the establishment of local industries or
    enhance the expansion and growth of  existing ones so as to provide job opportunities.
  •  Political motive: Tariffs can be introduced as discriminatory measure against unfriendly countries.
  •  To promote self-sufficiency: Tariffs are also imposed on imported goods to enable a country to be self-sufficient in the production of numerous goods.
  • To check consumption pattern: If all sorts of goods are allowed to come into the country, the citizens will develop uncontrolled appetite for foreign goods.
  • To protect strategic industries: Tariff may be used in most cases to protect  certain strategic industries.

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