The impact of tariff Essay Example

The Impact of Tariff

Lecturer

A tariff refers to a tax that is enforced on the export or import of goods. Tariffs have three main roles. First, it acts as a revenue source for the government. Previously, the revenue role was actually among the main grounds for imposition of tariffs. However, economic development along with the establishment of methodical codes for domestic tax has lessened its significance in developed nations. Second, tariffs are used as policy tools for protecting local industries by varying the provisions under which competition of goods occurs in a way that puts imported goods at a disadvantage. Some countries use tariff quotas to achieve a balance between safeguarding domestic industries and market access. Lastly, a country may use punitive tariffs to deal with trade distortions stemming from measures implemented by other nations. For instance, Antidumping Agreement permits nations to impose anti-dumping duties to handle proven dumping cases (Kerr & Gaisford 2008).

Tariffs have both direct and indirect impacts on countries. The most vital impact of import tariffs is increase of domestic prices in the nation enforcing the tariff. In large nations, which influence international prices, the increase in prices is somehow lower than the tariff amount since a portion of this amount is shown in reduction of international prices. For small countries with no influence on global prices, the increase in local prices equals the tariff amount. A price increase that is induced by tariffs generates a gap amid prices in exporting and importing nations. This causes production to increase in importing nations, while demand decreases, which reflects the industries’ protection role of tariffs. Customers in the importing nation are also affected by the high prices making them to lower the level of their purchases (Wright State University n.d).

References

Kerr, WA & Gaisford, JD 2008, Handbook on international trade policy, Cheltenham, Edward Elgar.

Wright State University n.d, The Basic Analysis of a Tariff, Retrieved June 5, 2013, from http://www.wright.edu/~tdung/Chapter7_Pugel.htm