Tariffs: International Trade and Tariff

Topics: International trade, Free trade, Economics Pages: 10 (2198 words) Published: August 23, 2014
How do government tariffs impact on imported goods? What are the pros and cons of these tariff and what are the likely future trends.

Tariff is tax that a government collects on goods coming into a country. It is a tax which is levied on imports across national boundaries or other geographical regions and exports in a few cases (Lv, 2000). Originally, applying tariffs was first based on financial purpose, so it is a regular but most significant source of fiscal revenue to governments. Generally, a country with strong economy and lying in an advantageous position tends to pursue a free trade policy. 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. 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 (Hu & Su, 2007). Zigmantavičienė and Snieška (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 satisficing model (Linkins & Arce, 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 (WTO) in December 2001, with repealing the non-tariff barriers (NTBs) policy, and accelerating access of foreign capital into China’s capital market. The aim of NTBs 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 1995 were 26% above those in 2004. Imports have increased 3.9 times (Hu & Su, 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. Carbaugh (2003) claims that import tariffs ostensibly give local manufactures an advantage over...
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