11 February 2013
The Protectionism Effect: Tariffs, Quotas, and Subsidies
The most common way to protect one’s economy from import competition is to implement a tariff: a tax on imports. Generally speaking, a tariff is any tax or fee collected by a government. Sometimes the term “tariff” is used in a nontrade context, as in railroad tariffs. However, the term is much more commonly used to refer to a tax on imported goods.
Tariffs have been applied by countries for centuries and have been one of the most common methods used to collect revenue for governments. This is because it is relatively simple to place customs officials at the border of a country and collect a fee on goods that enter. Administratively, a tariff is probably one of the easiest taxes to collect. (Of course, high tariffs may induce smuggling of goods through nontraditional entry points, but we will ignore that problem here.)
Tariffs are worth defining early in an international trade course since changes in tariffs represent the primary way in which countries either liberalize trade or protect their economies. It isn’t the only way, though, since countries also implement quotas, subsidies, and other types of regulations that can affect trade flows between countries. These other methods will be defined and discussed later, but for now it suffices to understand tariffs since they still represent the basic policy affecting international trade patterns.
When people talk about trade liberalization, they generally mean reducing the tariffs on imported goods, thereby allowing the products to enter at lower cost. Since lowering the cost of trade makes it more profitable, it will make trade freer. A complete elimination of tariffs and other barriers to trade is what economists and others mean by free trade. In contrast, any increase in tariffs is referred to as protection, or protectionism. Because tariffs raise the cost of importing products
Cited: Suranovic, S. (2013, Feb 10). International Trade : Theory and Policy, v.1.0. Retrieved from FWK Reader: http://catalog.flatworldknowledge.com/bookhub/28?e=fwk-61960-ch01_s02 IMPORT QUOTAS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2013. [Accessed: February 10, 2013]. Monica Sanders, D. M. (2013, Feb 10). The Disadvantages of Tarrifs & Quotas. Retrieved from The Houston Chronicle: http://smallbusiness.chron.com/disadvantages-tarrifs-quotas-20726.html