Tariff, Tariffs

When a domestic government imposes a tax or duty on an imported good, it is called a tariff. The World Bank predicts that global economy would expand by $830 billion by 2015 if these trade barriers such as tariffs were eliminated. Imposition of tariffs also affects the trade and diplomatic relations between partnering nations.

Tariff: Reasons and Implications

Simply put, tariff is a form of trade barrier that aims to raise the price of goods that are traded across the world. Import tariffs have both political and economic implications. Economists consider tariff as unfair towards consumer rights of choice. They controvert the concept of tariffs as a measure which government may use to sustain an inefficient industry.

Some reasons for imposition of tariffs are:

Domestic employment: Increased competition from imported goods may affect domestic production and result in loss of employment. Tariffs aim to ensure that domestic industries remain profitable and generate employment.

• Fledgling industries: Nearly every industry has a gestation period. So, governments impose tariffs to protect fledgling industries from foreign competitors.
• Dumping: When a country dumps its goods in another country and sells it at below average prices, this is called dumping. It affects the recipient country’s domestic producers adversely so countries impose tariffs to counter this threat. Consumer protection: A country may impose tariffs on goods that are of substandard quality. This is done to protect its consumers.
• Retaliation: At times, countries may impose tariffs to retaliate against trading nations for non-adherence to agreed trade practices

Tariffs: Types

A government can impose different sorts of tariffs such as:

• Ad valorem: It considers a percentage of the product price as import tariff. Ad valorem falls with decrease in the international prices for a particular product.
• Specific tariff: This is a fixed tariff that is levied on each unit of the imported good. Specific tariff differs as it is based on the price of a particular product class. For instance, a country may levy $10 as tariff on import of wrist watches but tariff over an imported car may rise to thousands of dollars.

Curbing import tariffs is a way to promote the ideology of free market and global economy.