Basics of Tariffs and Trade barriers

Market trend

International trade has paved its way towards the global landscape and we aren’t surprised. It has led economies enter into new territories and opened up horizons. Changing the entire scene at the market, the game has new players some entirely depending upon successes at the international trade front. It has led to an increase in the number of products, reduction of cost due to competition and has allowed countries to widen their reach thus allowing them to ship their products abroad and vice versa. However not all countries agree with this idea of beneficial trade, for to most, free trade doesn’t end up with good results. With the wave of liberalization, unnecessary barriers, regulations and restrictions through quotas and tariffs, was lessened or even abolished in a sense. However, international trade is facilitated by these important factors and yet the basics about them are often unknown or misinterpreted if not simply turned a blind eye toward. 

So what is a tariff? A tariff is basically a tax. It adds to the cost of imported goods and is one of several trade policies that a country can enact. Paid to the customs authority of the country imposing the tariff, these are used for various purposes by developing and developed economies. Some of the reasons are as follows. Protecting domestic employment is a primary cause. Often due to unregulated competition, domestic markets are put to the test and suffer from losses leading to major unemployment due to shutting down of sick units, low cost international labor etc.

Protecting consumers to save them from the risk and possibility of endangerment on imported products. Infant industries’ need to be protected and given equal opportunities and levying certain taxes on imported goods, creates a marketplace for domestic products. So they can feel just at home. Barriers are also employed by developed countries to protect certain industries that are deemed strategically important, such as those supporting national security. Sometimes even as retaliation when a certain trade partner decides to change his ways and not play by the rules. 
There are also different types of tariffs and trade barriers: Specific tariffs, Ad valorem tariffs, licenses, import quotas, Voluntary export restraints, Local content requirements.

The beneficiaries from these taxes are largely the governments of respective countries I.e increased revenue due to import. However, either way, the customers seem to be the ones subjected to these taxes wither way. However this also is bound to change and shift over time.

The role tariffs play in international trade has declined in modern times. One of the primary reasons for the decline is the introduction of international organizations designed to improve free trade, such as the World Trade Organization (WTO). Such organizations make it more difficult for a country to levy tariffs and taxes on imported goods, and can reduce the likelihood of retaliatory taxes. Because of this, countries have shifted to non-tariff barriers, such as quotas and export restraints. 

So while free international trade is highly beneficial and convenient for the customers because of increased products and lessened prices, it doesn’t bode well for the global economies at the market. The delicate balance needs to be maintained to ensure efficiency and avoid any further economic problem for any country. The equilibrium has to be taken care of and thus, that’s the foundation that tariffs and trade barriers protect and conserve.

Anum

Anum Yoon is the founder and editor of Current on Currency. She loves all things personal finance, which is why you'll find her work all over the PF blogosphere.

Leave a Reply

Your email address will not be published. Required fields are marked *