Benefits of Tariffs
Tariffs can protect domestic industries from foreign competition by making imported goods more expensive. This can help preserve jobs and prevent the loss of domestic industries. Additionally, tariffs can generate revenue for the government, which can be used for various public services and infrastructure projects.
6 Key excerpts on "Benefits of Tariffs"
eBook - ePub- W. Charles Sawyer, Richard L. Sprinkle(Authors)
- 2020(Publication Date)
- Routledge(Publisher)
...While tariffs are no longer a major form of tax revenue for the U.S. government, they still have important economic effects. For example, the tax—tariff—imposed on an imported good determines or influences what you consume and how much of the good you consume. Although the average tariff in the U.S. is approximately 4 percent, the tariff on many imported products remains quite high. Some tariffs imposed by governments are designed as revenue tariffs. A revenue tariff is an import tax levied on a good that is not domestically produced. There are some revenue tariffs in the U.S., although they are rare. Revenue tariffs are most common in the developing countries. Tariffs are designed primarily to be protective tariffs. The purpose of a protective tariff is to protect a domestic industry from foreign competition. In this chapter, we will be concerned with the effects of tariffs that are imposed to protect domestic industries. Types of tariffs The simplest form of a tariff is a specific tariff. A specific tariff is expressed as a per-unit tax on imported goods, such as 6 cents per imported liter or $4 per imported ton. A specific tariff is relatively easy for a government to administer—it is a certain amount of money per unit of whatever is imported. However, if there are large differences in the imported price per unit, the effects of a specific tariff are not uniform across lower-priced and higher-priced items. For example, a specific tariff of $1,000 imposed on automobiles would yield a high percentage tariff relative to the import price of Hyundais and a low percentage tariff relative to the import price of Porsches. In this case, a specific tariff is regressive. Hyundais and Porsches are likely to be purchased by lower-income and higher-income consumers, respectively. As a result, the less well-off pay a larger percentage of their income in tariffs than do those who are more affluent...
eBook - ePub- Bruce Bueno de Mesquita(Author)
- 2013(Publication Date)
- CQ Press(Publisher)
...10 Free Trade or Fair The Domestic Politics of Tariffs Many world leaders believe that free trade ultimately will prove beneficial to international commerce and national economies; others fail to see its upside. Here, a group of farmers cross a tollbooth in the town of Tepoztlan on the outskirts of Mexico City on January 30, 2008. Several farmers groups gathered in Mexico City to protest the lifting of import tariffs on corn and beans as agreed by the North American Free Trade Agreement (NAFTA) timetable. OVERVIEW Governments regulate trade in part to protect select constituencies. The larger the coalition on which a government relies, the less likely it is to promote trade protection. Free trade promotes efficient and equitable outcomes by encouraging the pursuit of each country’s economic comparative advantage. Every country has a comparative advantage in some aspect of production, so trade is beneficial between two countries even when one of them can produce any product more cheaply than can the other. As consumers, all people benefit from the increased competition and lower prices produced by free trade, but as workers or owners of businesses, some people may benefit more than others from free trade and some may be harmed. Tariffs protect domestic businesses and labor against competition. As such, tariffs tend to increase the costs of goods and services to consumers while decreasing their supply. Because higher prices tie up money that could otherwise have been spent on other goods and services, tariffs tend to harm economic growth by reducing demand for products in unprotected industries. T wo of the foundational ideas behind the purpose—if not always the practice—of national government is that it should protect citizens against foreign (and domestic) threats and it should improve citizen welfare. We addressed the first purpose in chapters 5 and 6 when we examined war and national security issues...
eBook - ePubThe Regulation of International Trade
4th Edition
- Robert Howse, Antonia Eliason(Authors)
- 2013(Publication Date)
- Routledge(Publisher)
...7 Border measures Tariffs and quantitative restrictions TARIFFS OVERVIEW Tariffs are essentially taxes on imported goods, and they, as well as other customs duties, must be applied in accordance with the Most Favoured Nation (MFN) principle discussed in Chapter 2 of this book. Additionally, WTO Members may, but are not obligated to, commit to binding certain customs duties that may generally be understood as committing to maximum duties for particular products. 1 Binding is in accordance with the object and purpose of both the WTO Agreement and the GATT 1994. These two Agreements in their respective preambles recognize the desirability of ‘reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade’. Members’ commitments vary, are usually the product of multilateral trade negotiations, and are included in schedules of concessions which may be found in the annexes of the GATT. THE ECONOMIC EFFECTS OF A TARIFF The economic effects of a tariff on both importing and exporting countries are best understood by first examining the case of a prohibitive tariff, a tariff that is so high that it prevents all imports. Here we draw on an example provided by Ruffin and Gregory. 2 (See Figure 7.1.) With a prohibitive tariff, the prices paid for shirts in each country are determined by the supply and demand curves in each country. To compare prices, we assume that US$2 = £1. If there was no tariff, prices would be the same in the two countries. The prohibitive tariff in America raises the price in America from US$6 to US$9. Consumers lose area A + B, but producers gain area A. The net loss to America is area B. In the UK, prices fall from £3 to £2, and producers lose area C + D, while consumers gain C. The gain to consumers is less than the loss of producers. The net loss to Europe is area D. One can next consider a non-prohibitive tariff, which does not preclude all imports of a product...
eBook - ePubInternational Trade
New Patterns of Trade, Production and Investment
- Nigel Grimwade(Author)
- 2020(Publication Date)
- Routledge(Publisher)
...Rather, it become a relatively easy way in which domestic producers can secure protection. Anti-tariff groups generally lack strength and are poorly organised when it comes to resisting pressures applied by producers for anti-dumping measures. In particular, consumers and users of goods subject to anti-dumping measures often lack sufficient information about the effects of these measures on prices. Anti-dumping is also one way in which politicians can secure votes from vested interest groups and public bureaucrats can maximise their utility functions by increasing their influence among producers in the sector of the economy with which they relate. Conclusion In this chapter, the benefits to be reaped for all countries from maintaining open markets have been demonstrated. Free trade results in welfare gains for all countries individually and for the world as a whole. The nature of the gains differs depending on whether increased trade leads to inter- or intra-industry specialisation. However, in practice, governments use a wide variety of methods to restrict imports or boost exports. In the past, tariffs were the main instrument used to grant protection to domestic producers. Over the past half century, however, tariffs on industrial products have fallen. Instead, new forms of non-tariff protection have emerged. In some cases, the effects of these newer forms of protection have been even more damaging than old-style tariff protectionism. Very few sound economic arguments exist for protection in any form, except, perhaps, as temporary measures to cope with short-term adjustment problems. In recent years, however, trade theorists have challenged the received wisdom by showing that, where the traditional assumptions of perfect competition do not hold, government intervention in trade may be beneficial. On the other hand, the models proposed are highly sensitive to the assumptions made about the market and about how firms behave...
eBook - ePubFree Trade under Fire
Fifth Edition
- Douglas A. Irwin(Author)
- 2020(Publication Date)
- Princeton University Press(Publisher)
...When imports of a product are restricted, the product becomes scarcer in the domestic market. Scarcity drives up the price, benefiting domestic producers of the product but harming consumers who are forced to pay more for it. Second, protectionist policies distort domestic prices in a way that leads to inefficiency (wasted resources), or in economic jargon, a deadweight loss. As import restrictions push the domestic price of a good above the world price, domestic firms produce more (at a higher cost than the goods would be available on the world market), while consumers buy less than they otherwise would, forgoing some of the benefits of consumption. The inefficiency associated with these distortions of incentives imposes a deadweight loss on the overall economy. Trade barriers are like an income transfer in which ten dollars is taken from consumers while giving only eight dollars to producers, resulting in a two-dollar loss to the economy as a whole. In 2018, President Trump, who calls himself “Tariff Man,” unleashed successive waves of tariffs. The first wave saw the imposition of 30 percent duties on imported solar panels and 20 to 50 percent on imported washing machines. The second wave included a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports. The third wave targeted imports from China, 25 percent tariffs on $34 billion of imports in July, 25 percent tariffs on an addition $16 billion in imports in August, and 10 percent tariffs on another $200 billion in imports in September. (This was followed by plans, in December 2019, by another $300 billion in imports from China being taxed at 10 percent, unless a truce was reached.) One study of these tariffs confirmed that the demand for imports is downward sloping in that higher tariffs reduce imports: A 1 percentage point increase in the tariff rate gives rise to a 6 percentage point fall in imported quantity...
eBook - ePub- Friedrich List, W. O. Henderson, W. O. Henderson(Authors)
- 2016(Publication Date)
- Routledge(Publisher)
...CHAPTER TWENTY THREE Tariffs: the Policy of Protection I T HAS BEEN seen that the system of prohibitions is a natural consequence of long wars which interrupt peaceful contacts between two great nations for many years. In the same way the policy of tariff protection is a result of shorter wars. It may also be brought about if a predominantly industrial state puts an end to a long established trade with an agricultural country by adopting a hostile tariff policy. There are many ways in which tariffs can encourage the development of industries. Countries with different material and human resources and different economies will require different tariffs. One type of tariff will be suitable for a country which has previously had a prohibitive system while another type will be suitable for a country which is reorganising an existing protective tariff. One tariff will be suitable for a purely agricultural country, while another will be suitable for a country in which various branches of manufacture have already made some progress. In order to explain how tariffs can be adapted to the requirements of particular countries we shall imagine a state which has – or can secure – a surplus of foodstuffs and raw materials such as wool and cotton. The social and moral condition of this country and its political institutions are suitable for industrial expansion. The country exports wool and cereals to an industrial state and imports manufactured goods from that state. Let us suppose that the industrialised country decides to impose high import duties on wool and grain. In such circumstances the agrarian country would be forced to retaliate by imposing import duties on manufactured goods from the industrialised state. The tariff policy of the agrarian country would be influenced by the level of wages earned by its workers...
