International Trade Policy: Tariff and Non-tariff Barriers

• The Essence of Tariff Barriers• Effects on Tariff barriers

• One of the most used types of Trade restrictions is the tariff, which mostly a tax on imports.

• Governments have imposed tariffs to raise revenue and to protect domestic economic interests from import competition.

• Tariff barriers are duties imposed on goods which effectively create an obstacle to trade, although this is not necessarily the purpose of putting tariffs in place.

• Tariff barriers are also sometimes known as import restraints, because they limit the amount of goods which can be imported into a country.

• Many organizations which promote trade are concerned about both tariff and non-tariff barriers to free trade, and a number of nations have agreed to radically reduce their trade barriers to promote the exchange of goods across their borders.

Negative aspects of Tariffs

• Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency, this can be explained by the theory of comparative advantage.

• In theory, free trade involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as agriculture and steel.

Positive aspect of Tariffs

• Promotes developing weak and newly organized branches of the Economy

• Decreases the pressure of International Competition for domestic industries

Types of Tariffs• Ad valorem tariffs – is a tax on import or export

that is specified as a percentage of the value of the product on which the tariff is levied. It charges a specified percentage of the value of tariffed good.

• Specific tariffs – levies a designated amount of money per unit of imports. It charges a specified amount on each imported unit of the tariffed good

• Mixed or compound tariffs –this group of tariffs consist of ad valorem and specific tariffs’ features

Reasons for imposing tariffs

• Tariff like any other tax can be used to discourage consumption of particular goods

• To generate revenue for the government of the tariff- imposing country

• To discourage imports in an effort to decrease a deficit of Trade balance

• To realize protectionist policy – to protect domestic industry from competition by foreign producers

2. Effects on Tariff barriers• Consumer effect ( decreasing the quantity of

consumption)• Trade effect - ( decreasing the quantity of import)• Industrial effect – promotion the domestic and

infant industries• Revenue effect – government raises funds to

finance state expenditures• RE-distribution effect – redistribution of revenue

from consumers to domestic industries