Tariffs

10 Key excerpts on "Tariffs"

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  Introduction to International Economics

  • Dominick Salvatore(Author)
  • 2012(Publication Date)
  • Wiley

    (Publisher)

  historically. A tariff is a tax or duty levied on the traded commodity as it crosses a national boundary. An import tariff is a duty on the imported commodity, while an export tariff is a duty on the exported commodity. Import Tariffs are more important than export Tariffs, and most of our discussion will deal with import Tariffs. Export Tariffs are prohibited by the U.S. Constitution but are often applied by developing countries on their traditional exports (such as Ghana on its cocoa and Brazil on its coffee) to get better prices and raise revenues. Developing nations rely heavily on export Tariffs to raise revenues because of their ease of collection. On the other hand, industrial countries invariably impose Tariffs or other trade restrictions to protect some (usually labor-intensive) industry, while using mostly income taxes to raise revenues. Tariffs can be ad valorem, specific, or compound. The ad valorem tariff is expressed as a fixed percentage of the value of the traded commodity. The specific tariff is expressed as a fixed sum per physical unit of the traded commodity. Finally, a compound tariff is a combination of an ad valorem and a specific tariff. For example, a 10 percent ad valorem tariff on bicycles would result in Concept Check What are the different types of Tariffs? the payment to customs officials of the sum of $10 on each $100 imported bicycle and the sum of $20 on each $200 imported bicycle. On the other hand, a specific tariff of $10 on imported bicycles means that customs officials collect the fixed sum of $10 on each imported bicycle regardless of its price. Finally, a compound duty of 5 percent ad valorem and a specific duty of $10 on imported bicycles would result in the collection by customs officials of the sum of $15 on each $100 bicycle and $20 on each $200 imported bicycle. The United States uses the ad valorem and the specific tariff with about equal frequency, whereas European countries rely mainly on the ad valorem tariff.

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  The International Business Environment

  A Handbook for Managers and Executives

  • Warnock Davies(Author)
  • 2015(Publication Date)
  • Productivity Press

    (Publisher)

  22 2.3.4 Other barriers to trade 22 Endnotes 23 Tariff and non-tariff barriers 11 A duty is a tax that is levied on the sale or movement of a product. Duties that are applied to the sale or movement of a product within a nation-state are referred to as excise duties . 5 The term customs refers to the government department that administers and col-lects duties levied on products entering or leaving a nation-state. Duties that are applied to products entering or leaving a nation-state are referred to broadly as customs duties . 6 Customs duties include Tariffs, safeguards, anti-dumping duties, and countervail-ing duties. 7 2.2.1.2 Customs Tariffs The word tariff literally means a list of fixed prices or fees that is made public. 8 In international trade, the term tariff or customs tariff refers to a customs duty that is fixed, is listed on a customs tariff schedule, and applies to a particular HS product category 9 and to a product’s country of origin. 10 Customs Tariffs are classified as either ad valorem Tariffs or specific duty Tariffs. 11 2.2.1.3 Ad valorem Tariffs Most trade Tariffs are ad valorem . 12 An ad valorem tariff is based on a product’s monetary value, is referred to as a tariff rate , and is expressed as a percentage. The US: Cars The trade tariff on cars is usually an ad valorem tariff. For example, the tariff rate on cars entering the United States is 2.5 percent. Based on this tariff rate, if the value of a car entering the United States is $30,000, the tariff will be $750. 2.2.1.4 Specific duty Tariffs A specific duty tariff is an amount levied on each unit that is imported, or on each unit of quantity or weight that is imported. Specific duty Tariffs are not expressed as a percentage, but as a monetary amount. Indonesia: Rice In 2011, the government of Indonesia applied a tariff of 450 rupiahs per kg on the importation of rice. This was a specific duty tariff, because it applied to the quantity (by weight) of the rice being imported.

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  Introduction to International Economics

  • Dominick Salvatore(Author)
  • 2014(Publication Date)
  • Wiley

    (Publisher)

  The tariff has been the most important type of trade restriction Import tariff A tax or duty on imports. Export tariff A tax or duty on exports. Ad valorem tariff A tariff expressed as a fixed percentage of the value of a traded commodity. Specific tariff A tariff expressed as a fixed sum per unit of a traded commodity. Compound tariff A combination of an ad valorem and a specific tariff. historically. A tariff is a tax or duty levied on the traded commodity as it crosses a national boundary. An import tariff is a duty on the imported commodity, while an export tariff is a duty on the exported commodity. Import Tariffs are more important than export Tariffs, and most of our discussion will deal with import Tariffs. Export Tariffs are prohibited by the U.S. Constitution but are often applied by developing countries on their traditional exports (such as Ghana on its cocoa and Brazil on its coffee) to get better prices and raise revenues. Developing nations rely heavily on export Tariffs to raise revenues because of their ease of collection. On the other hand, industrial countries invariably impose Tariffs or other trade restrictions to protect some (usually labor-intensive) industry, while using mostly income taxes to raise revenues. Tariffs can be ad valorem, specific, or compound. The ad valorem tariff is expressed as a fixed percentage of the value of the traded commodity. The specific tariff is expressed as a fixed sum per physical unit of the traded commodity. Finally, a compound tariff is a combination of an ad valorem and a specific tariff. For example, a 10 percent ad valorem tariff on bicycles would result in Concept Check What are the different types of Tariffs? the payment to customs officials of the sum of $10 on each $100 imported bicycle and the sum of $20 on each $200 imported bicycle.

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  International Economics

  • Dominick Salvatore(Author)
  • 2020(Publication Date)
  • Wiley

    (Publisher)

  193 PA R T 2 International Trade Policy Part Two (Chapters 8–12) deals with international trade or commercial policies. Chapter 8 examines Tariffs, the most important of the trade restrictions historically. Chapter 9 extends the discussion to other trade restrictions, evaluates the justifica-tion usually given for trade restrictions, and summarizes their history. Chapter 10 deals with economic integration, Chapter 11 focuses on the effect of international trade on economic development, and Chapter 12 looks at international resource movements and multinational corporations. 195 C H A P T E R 8 Trade Restrictions: Tariffs L E A R N I N G G O A L S After reading this chapter, you should be able to: • Describe the effect of a tariff on consumers and producers • Identify the costs and benefits of a tariff on a small and a large nation • Describe an optimum tariff and retaliation • Understand the meaning and importance of tariff structure 8.1 Introduction We have seen in Part 1 that free trade maximizes world output and benefits all nations. However, practically all nations impose some restrictions on the free flow of international trade. Since these restrictions and regulations deal with the nation’s trade or commerce, they are generally known as trade or commercial policies . While trade restrictions are invariably rationalized in terms of national welfare, in reality they are usually advocated by those special groups in the nation that stand to benefit from such restrictions. The most important type of trade restriction has historically been the tariff. A tariff is a tax or duty levied on the traded commodity as it crosses a national boundary. In this chapter, we deal with Tariffs, and in the next chapter we discuss other trade restrictions. An import tariff is a duty on the imported commodity, while an export tariff is a duty on the exported commodity. Import Tariffs are more important than export Tariffs, and most of our discussion will deal with import Tariffs.

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  Applied International Economics

  • W. Charles Sawyer, Richard L. Sprinkle(Authors)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  CHAPTER 8

  Tariffs

  We up in Massachusetts do not want that duty upon molasses, we trade our fish for molasses, and if you shut out molasses you shut in fish. U.S. Congressional Debates, 1790

  A protective tariff is immoral and dishonest, because its sole purpose is to increase prices artificially, thereby enabling one citizen to levy unjust tribute from another. Cordell Hull

  INTRODUCTION

  S o far, we have assumed that international trade is similar to trade among the various regions of a country in that it is not impeded by government action. As such, we have shown that free trade leads to the most efficient allocation of world resources and maximizes world output. However, governments do restrict the international flow of goods and services through the use of trade barriers. In this chapter we begin our study of the effects of trade barriers. Our analysis begins by examining the most basic barrier to trade – the tariff. To describe the effects of a tariff, we employ a basic supply and demand model by returning to our discussion of international trade for a single product. This model allows us to focus on the effects that Tariffs have with respect to imports, domestic consumption, and domestic production. In the final section of the chapter, we cover some of the common arguments in favor of Tariffs and show that, usually, there is a better public policy option available than imposing Tariffs.

  Tariffs: SOME PRELIMINARY DETAILS

  A tariff is simply a tax on an imported good.1 Like all taxes, a tariff does the following:

  • It affects the domestic consumption of an imported good.
  • It affects the domestic production of goods that compete with the imported good.
  • It affects the foreign production of the imported good.
  • It changes the structure of the domestic economy.

  In many respects, the effects of a tariff are no different than those of any other tax imposed by a government. 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.

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  International Trade Policy

  A Contemporary Analysis

  • Nigel Grimwade(Author)
  • 2006(Publication Date)
  • Routledge

    (Publisher)

  2 INDUSTRIAL Tariffs

  INTRODUCTION

  In the period since the establishment of the GATT, great progress has been made in reducing Tariffs on industrial goods. Very little attempt was made to tackle the problem of nontariff barriers until the seventh (Tokyo Round) of 1973–9. Similarly, before the successful conclusion of the recent Uruguay Round, trade in agricultural goods was largely exempt from GATT rules. One result of this tariff-cutting process is that Tariffs are now much less important as an impediment to trade in industrial products. Increasingly, other types of barrier have become more important.

  However, it is not true that Tariffs no longer matter. High Tariffs still exist on particular products. Moreover, a country’s tariff structure may be more protectionist than the average level of its tariff suggests. This chapter begins by examining the economic effects of Tariffs and the procedure which is conventionally used for measuring the welfare loss from Tariffs. It continues with a discussion of some difficulties involved with the orthodox model and considers modifications which incorporate imperfections in both product and factor markets. Next, the relevance of tariff structure and the concept of the effective rate of protection are introduced. The chapter concludes with a survey of the process of tariff liberalisation up to and including the Uruguay Round.

  THE NATURE AND EFFECTS OF Tariffs

  A tariff is a tax or levy on an imported product. It may take the form of either a specific or an ad valorem duty. In the case of a specific duty, the tariff is a fixed amount per unit of the product imported. An ad valorem duty is a tariff which is a certain percentage of the unit value. Generally, ad valorem Tariffs are more popular than specific Tariffs mainly because they keep pace with inflation. (A weakness is that they may import inflation to an otherwise inflation-free country.) However, specific Tariffs are still important. For example, prior to the Uruguay Round, roughly one-third of all tariff lines in the US were covered by specific duties, about 13 per cent in Japan and 10 per cent in the United States (Yeats, 1979). Ad valorem

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  The Theory of International Trade

  An Alternative Approach

  • B. Horvat(Author)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Reduced import – production plus con- sumption effects – improves balance of trade, saves foreign exchange and contributes to economic independence. Tariffs may also be used to increase military preparedness or as a bargaining instrument. If a large country imposes Tariffs, it will change international prices and thus change terms of trade. Countries whose competitiveness is deteriorating move towards increased protectionism (as Great Britain did after the First World War). Tariff represents an import tax whereby the lower international price of importables is equalized with the domestic price p m (1 t)P m Similarly an export tax reduces domestic price of exportables p e (1 t) P e where m stands for importables and e for exportables. Already Abba Lerner (1934) noticed that a general export tax has the same effect as a general import tax, ceteris paribus. The ratio of domestic prices remains the same p e 1 P e , p m P m (1 t) or p e (1 t) P e (18.1) p m 1 t P m (the conclusion is not valid when non-traded goods are included). The imposition of export tax reduces domestic export prices but leaves intact import prices. That may also be interpreted as un- changed domestic export prices and increased import prices. In the short run an export tax operates in a depressive way (for exportables) and tariff in an expansionary way (for import substitutes). The lat- ter seems preferable for policy purposes. Tariffs and Subsidies 127 18.2 PROHIBITIVE TARIFF AND SUBSIDY A tariff that stops imports is called prohibitive. Imports will be stopped when the ratio of home prices is equalized with the ratio of world prices with Tariffs p 1 / p 2 (1 t)P 1 / P 2 (18.2) Tariff rate t is prohibitive. Lower than that is insufficient because X 1 will continue to be imported. A higher rate is not necessary. That would mean pure revenue collecting for the government and there are more efficient instruments for that purpose (for instance, value added tax).

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  Who Adjusts?

  Domestic Sources of Foreign Economic Policy during the Interwar Years

  • Beth A. Simmons(Author)
  • 2020(Publication Date)
  • Princeton University Press

    (Publisher)

  The evidence suggests that tariff levels are best explained by structural variables, especially an economy's size and degree of trade dependence. But changes in tariff levels are much more closely correlated with changes in economic and political conditions. As we would expect, tariff increases were associated with economic downturn. But somewhat surprisingly, given the position of labor on protection since the Second World War, greater left-wing representation in legislatures contributed to tariff decreases. Consistent with our findings in previous chapters, governments facing domestic political tur-moil tended slightly to externalize by raising Tariffs, while those that were more stable tended to reduce them. When we control for the impact of structural and economic variables, protection emerges as the choice of the center right, and of governments so precariously positioned that they were unable to absorb the costs of adjustment. 1 Barry Eichengreen (ed.), The Gold Standard in Theory and History (New York: Methuen), 1985, p. 22. TARIFF PROTECTION 175 DESCRIPTIVE STATISTICS OF TARIFF PROTECTION Any measure of exactly how much a country is protecting its domestic pro-ducers from external competition is highly problematic. Protection can be achieved in a number of ways: through Tariffs, quotas, excessive regulations, currency controls, bilateral clearing arrangements, and other creative means. 2 Many studies of the determinants of protectionist commercial policies explain the demand for protection 3 or legislated tariff levels. 4 In this chapter, I am most concerned with actual tariff outcomes, and so I use the ratio of customs collected as a percentage of the total value of imports as the most widely available measure of tariff protection (see Appendix I). The higher this ratio, the higher the tariff index for any given country-year.

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  Advanced International Trade

  Theory and Evidence - Second Edition

  • Robert C. Feenstra(Author)
  • 2015(Publication Date)
  • Princeton University Press

    (Publisher)

  8 Import Tariffs and Dumping T here are various reasons why countries use import Tariffs and other types of trade policies. Nearly all countries have used these instruments in the early stages of their development to foster the growth of domestic industries, in what is called import substitution . Such policies have been heavily criticized for protect-ing inefficient domestic industries from international competition. Many coun-tries have later switched to an export promotion regime, under which industries are expected to meet international competition through exports, albeit with subsi-dies (hopefully temporary) given to exporters. The more than 140 members of the WTO have all committed to abandon such heavily regulated trade regimes, and move toward substantially freer trade. One question, then, is whether the use of import Tariffs and other trade policies at early stages of the development process has any rationale at all, especially when other markets (such as for capital) might not be functioning well. While this is too big a question to deal with adequately in this chapter, we will briefly discuss the rationale for temporary Tariffs in what is called “infant industry” protection. A second question concerns the welfare cost of Tariffs and quotas in situations where other markets are working well. Even under the GATT/WTO, countries are permitted to apply Tariffs in a number of cases, including: (i) “escape clause” tar-iffs, under which countries temporarily escape from their promise to keep Tariffs low, due to injury in an import-competing industry; (ii) antidumping duties, under which Tariffs are applied to offset import prices that are “too low.” For theoretical purposes, we can think of escape clause Tariffs as exogenously imposed on export-ing firms, and this will be our assumption in the first part of the chapter. We will examine the response of the exporters, as well as the response of import-competing firms, to such Tariffs.

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  Taxation in the Global Economy

  • Assaf Razin, Joel Slemrod, Assaf Razin, Joel Slemrod(Authors)
  • 2008(Publication Date)
  • University of Chicago Press

    (Publisher)

  371 Domestic Taxes and Border Taxes base. (Seen from a different perspective, the fixed costs associated with domestic taxes must be quite large before it is not worth incurring such costs.) As a result, utility levels are also higher, particularly for workers who consume relatively less of the first good. The optimal tax rates are very sensitive to the distributional weight, w, however. When w = .5, so that capitalists get less weight, trade is subsidized, implying that imports occur in spite of the fact that the world price of good 1 exceeds the domestic producer price of good 1. The net tariff rate can be measured by (pl-p;)/p;= (tl --~ ~ ) / ( l +T,), which in this case equals - 12.7 percent. When w = 1.0, however, trade is slightly discouraged.*' As in the previous case when only a tariff was used, trade distortions have conflicting distributional effects, but Tariffs on net aid capitalists by increasing demand for the capital intensive good. When w = 1.0, aiding capitalists is desired because the marginal social utility of income to capitalists exceeds that for workers, given the algebraic properties of the Cobb-Douglas utility functions being used. The following two rows describe the optimal tax rates when a tariff, a tax on domestic production of good 1, and a tax on domestic sales of good 2 are used.*l Again, we find that either trade taxes or subsidies are possible, depending on the distributional weights used. Note, however, that social welfare, and the relative size of the government, increase only slightly when we add a sales tax on good 2 to the available tax instruments, implying that only minor fixed costs would lead a country to use a simpler tax system. Since workers buy relatively more of good 2 , their welfare falls when this extra tax is introduced, while the welfare of capitalists increases. In addition, we examined the effects of eliminating Tariffs as a possible tax instrument, as might occur under GATT or IMF pressure.

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