International Trade
Import
Tariff
From Wikipedia, the free encyclopedia.
A tariff is a tax placed on imported and/or
exported goods, sometimes called a customs duty. A
revenue tariff is set with the intent of raising money for the
government. A protective tariff, usually applied to imported goods, is
intended to artificially inflate prices of imports and "protect" domestic
industries from foreign competition. The distinction between protective and
revenue tariffs is moot; revenue tariffs offer some limited protection, and
protective tariffs produce some small revenue. Tariffs are similar to tolls, which are applied
to people rather than goods.
Tax, tariff and
trade rules in modern times are usually set together because of their common
impact on industrial policy, investment policy and
agricultural policy.
A trade
bloc is a group of allied countries agreeing to minimize or eliminate
tariffs against trade with each other, and possibly to impose protective tariffs
on imports from outside the bloc. A customs union has a common
external tariff, and shares the revenues from tariffs on good entering the
customs union.
If a country's major industry collapses due to foreign competition, the loss
of jobs and tax revenue can severely impair parts of that country's economy.
Protective tariffs have been used as a measure against this possibility.
However, protective tariffs have disadvantages as well. The most notable is that
they increase the price of the good subject to the tariff, disadvantaging
consumers of that good or manufacturers who use that good to produce something
else:for example a tariff on food can increase poverty, while a tariff on steel
can make automobile manufacture less competitive. They can also backfire if
countries whose trade is disadvantaged by the tariff impose tariffs of their
own, resulting in a trade war and disadvantaging
both sides.
Some economic ideologies hold that
tariffs are a harmful interference with the laws of the free market. They believe
that it is disadvantageous for a country to artificially maintain an inefficient
industry, and that it is better to allow it to collapse and to allow a new one
to develop in its place. The opposition to all tariffs is called the free trade
principle; the World Trade
Organization aims to reduce tariffs and to avoid countries discriminating
between other countries when applying tariffs .
There are two mains ways of implementing a tariff:
- An ad valorem tariff is a fixed percentage of the value of the
good that is being imported. Sometimes these are problematic as when the
international price of a good falls, so does the tariff, and domestic
indutries become more vulnerable to competition. Conversely when the price of
a good rises on the international market so does the tariff, but a country is
often less interested in protection when the price is higher. They also face
the problem of transfer pricing
where a company declares a value for goods being traded which differs from the
market price, aimed at reducing overall taxes due.
- A specific tariff is a tariff of a specific amount of money that does not
vary with the price of the good. These tariffs may be harder to decide the
amount at which to set them, and they may need to be updated due to changes in
the market or inflation.
Adherents of supply-side
economics sometimes refer to domestic taxes, such as income taxes, as being
a tariff affecting inter-household trade.
Related topics
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From Wikipedia, the free encyclopedia.
Import substitution is a trade and economic policy based on the
premise that a developing country
should attempt to substitute products which it imports (mostly finished goods)
with locally produced substitutes. This usually involves government subsidies
and high tariff
barriers to protect local industries and hence import substitution policies are
not favored by advocates of absolute free trade. In addition
import substitution typically advocates an overvalued currency to allow easier
purchase of foreign goods and capital controls.
Import substitution policies were adopted by most nations in Latin
America in the 1950s and 1960s. They were rejected by most
nations in East Asia in the 1960s, and
many economists attribute the
superior performance of East Asia in the 1970s and 1980s to this difference in
policies. Typically, import substitution policies would result in inefficient
industries which created a drag on the economy.
In addition, the focus of import substitution in promoting industrialization
typically resulted in policies which benefited industrial workers at the expense
of farmers which made up most of the population of the nations involved. For
example to reduce the cost of industrialization, the cost of food was often
fixed at an artificially low level. In addition the licensing schemes required
for an import substitution strategy led also to rent seeking behaviors
which increased economic inefficiency.
In order to build up their manufacturing bases, many countries imposed high
tariffs on manufactured goods, so that multinational companies would instead
produce or assemble them locally. One example of this was in the motor industry,
in which manufacturers exported vehicles in 'completely knocked down' (CKD) kit
form, for local assembly. This often resulted in products that were of poorer
quality and more expensive than those imported 'completely built up'. It also
became increasingly inefficient for manufacturers to have identical products
assembled locally in several countries in the same region, which only served to
duplicate resources and reduce economies of scale.
As a result of the East Asian experience, import substitution policies
generally became unpopular by the mid-1980s and was largely rejected by the Washington
consensus.
However many economists have pointed out that the failure of import
substitution should not necessarily be taken as an endorsement of free trade.
They note that most East Asian countries
while rejecting import substitution also maintained high tariff barriers. The
strategy followed by those countries was to focus subsidies and investment on
industries which would make goods for export. The focus on export markets
allowed them to create competitive industries.
By the end of the 1990's, the Washington
consensus was being severely questioned. Nevertheless, there has not been a
return to import substitution as a developmental strategy.
See also:border
friction, Singer-Prebish
Thesis, Export
Oriented Industrialization
