In conclusion, universal trade isvery effective when a nation uses its resources more effectively. As such,nations with the ability to produce goods at reasonable prices have competitiveadvantages over those unable to do so. With every nation involved in the freetrade, the global economy is being stimulated.
However, when trade barriers areemployed to countries, it reduces the levels of trade ,consequently resulting inretaliation, leaving buyers to purchase goods at higher prices. Therefore,tariffs are instrumental factors in any trade since they have severaladvantages and disadvantages to both the host and foreign countries involved inthe trade.Tariffs are imposed to discourageoverseas competition, offering more opportunities for domestic based companies.Even though tariffs usually trigger retaliation, they promote the retention ofjobs when domestic producers employ more individuals to sell their goods andproducts.Limits CompetitionBusinesses of all types willattempt to avoid taxes. For example, when British consumers choose to purchaselow-priced goods locally, foreign producers obviously become disadvantaged, andthis will lead to reduced trade with overseas companies such as U.S.
companies.As a result, foreign companies can choose to import their products to nationswithout tariffs. In other words, high tariffs levied on imported productsdiscourage trade and cause job loss.
Job lossOne of the foundations ofmacroeconomics is that people, government and businesses will avoid taxes. Whenconsumers of a country decides to purchase a cheaper product of their country,foreign manufacturers become deprived, finally resulting in less trade withthat particular country. To compete with similar products of a given country,foreign manufacturers are compelled to cut down their prices.Discourage tradeDisadvantages ofTariffs Imposing of tariffs is debated veryoften. The likelihood of high competition from imported products can threatenlocal industries. These local industries may shift production abroad orretrench workers to reduce cost, which implies an increase in unemployment andangrier electorate. The unemployment row often shifts to local companiescomplaining about cheap oversea labor, and how lack of regulation as well aspoor working conditions permit oversea companies to manufacture products morereasonably.Protecting Local EmploymentDeveloped nations can also useTariffs to protect industries that are strategically important, for example,those industries enhancing the national security.
The defense industry iscritical to the interest of a country and often enjoys more protection.National SecurityConsumers can benefit from priceincreases due to stiff competition from overseas companies. For instance,agricultural tariffs can benefit domestic producers. Due to reducingcompetition, local producers can sell their goods easily to the domesticmarket. In addition, a government of a country may impose a tariff on a productthat it believes could pose a risk to its people.Protects the consumersAny government of a countrycollects revenue to support economically its operation. Increased revenue forthe government is a clear advantage to a country placing tariffs on importedgoods. Essentially, the government imposes tariffs to collect finances toenable them to operate smoothly.
Several studies have reported that thetariffs, particularly the customs tariffs contribute to 2% of the aggregaterevenues collected by the government. As such, the government indirectly anddirectly benefits from levying tariffs on both imports and exports. Tariffsalso play a vital role in maintaining the national security of a country.Increased revenue for the government When acountry decides to place tariffs on imported products, the manufacturers canchoose to pass on the expense to the customers or cut down their prices ascompensation for the tariff.
When manufacturers select to pass the levy toconsumers through the price increase, it promotes the local products. In thiscase, companies of that country are manufacturing the same products at the samecost; the foreign goods become costlier.Promotes the local products of a countryAdvantages of tariffs Tariffs areusually an obstacle to trade and are used as a tool to protect domesticindustry (Bacchetta, 2009). Tariffs are also referred as import fees, importduties, or customs.
Every country has its tariff rates, and this depends on thetype of product the country is intending to protect. Besides, a state willimpose sales taxes, various local taxes, as well as additional import dutiesfees, which is collected during customs clearance. In nations that have signedtrade treaties with one another, tariffs are waived either wholly or partly(Bacchetta, 2009).
For example, the United States of America has tradeagreements with over twenty nations. Several types of tariffs are available inthe trade between countries. These include the ad valorem and specific tariff. “Specifictariffs are trade barriers designed to reduce imports into countries” (BusinessDictionary). For example, “a tariff of $5 per barrel of oil” (McEachern, 2015,p.
282). The Business Dictionary defines ad valorem as duty or other chargeslevied on an item based on its value and not based on its quantity, size,weight, or other factor, for example, “10 percent on the imported price ofjeans” (McEachern, 2015, p. 282). “While arguments about the pros and cons ofthe North American Free Trade Agreement (NAFTA) filled the airwaves last fall,a far more muscular trade accord was being hammered out by the world’s majoreconomic powers with scant attention paid the proceedings.
Now, suddenly, theagreement reached on December 15, 1993, by the 117 countries party to theUruguay round of the General Agreement on Tariffs and Trade (GATT) has set thestage for the most expansive free-trade regime the modern world has ever known”(Kelly, 1994). According to the Forum Issue vol 3, multilateral, regional, andbilateral trade negotiations, as well as non-reciprocal concessions, has led tosome remarkable reductions in global tariff protection. They also stated thattrade barriers related to non-tariff measures (NTMs) may undermine the impactof falling tariffs. Bacchetta andBeverelli mentioned that in 2012, the World Trade Organization (WTO) lookedfurther into NTMs. They also stated that NTMs have existed since countriesfirst began to trade.
“A tariff is a tax on imports” (McEachern, 2015, p. 282). Tariffs are normally imposedon the imported products based on the value such of products or on the fixedunit price, once the importer enters a host country.
Normally, countries imposetariffs to fulfill many objectives including but not limited to reducing theamounts of imports and safeguarding the domestic industries from unprecedentedcollapse. Tariffs have several effects both to the foreign countries, hosts, aswell as, people. Throughout this paper, I will discuss tariffs and its pros andcons.