The Basics of Tariffs and Trade Barriers
In the first paragraph of this article, we discussed the basic elements of tariffs and trade barriers. Essentially, a tariff is a hard payment imposed on imported goods. This amount varies widely depending on the type of import. For instance, a country might levy a $15 tariff on sneakers but charge a $300 tariff on computers. A tariff is also called an “advert valorem” if it is based on a percentage of the value of the good being imported.
When a country imposes a tariff on goods it imports, it makes it more expensive for domestic consumers to buy these products. Therefore, many manufacturers pass the cost of higher import costs onto their customers. Tariffs are expensive because they increase the prices of goods, and consumers are often forced to choose a more expensive domestic product. This creates a situation where the consumers lose. However, this problem is relatively minor compared to the negative effects of retaliatory tariffs.
While openness to trade has boosted the economy worldwide, countries continue to face tariffs. For example, the United States maintains duties on a wide range of products, primarily clothing and footwear. Although the overall effective rate of tariffs is low, this is not the case. For instance, while the United States collects 15 cents in tariff revenue on goods from Bangladesh, only one cent is collected when the same product is imported into major western European countries.
Trade, in addition to reducing prices, also increases product variety. For instance, the United States now imports four times more varieties of rice than it did in the 1970s. Likewise, a wider range of inputs increases investment spending and is therefore more efficient. Ultimately, the benefits of free trade outweigh the negative impacts of tariffs. But how do trade barriers affect consumers? The debate is still raging.
Several studies suggest that the U.S. economy will suffer from increased tariffs in the near future, resulting in a decrease in real GDP and reduced purchasing power for American consumers. In addition, business uncertainty about future trade barriers leads some to delay investments and make costly supply chain adjustments. Meanwhile, higher tariffs will cause foreign trading partners to retaliate by imposing tariffs on U.S. goods. These measures will make American exports more expensive for foreign buyers.
Some argue that tariffs cause inflation by increasing prices in home markets. In fact, the economic cost of tariffs is higher than the benefits. While there is a direct correlation between the two, the reality is that they increase prices. Furthermore, they increase public revenue. The effect is the same with increased costs – higher prices increase the value of imported goods. Tariffs can be justified when they target specific industries or products. The goal is to promote the efficiency of the economy while keeping the cost of imported goods and services low.
The costs of tariffs are often higher than the value of the imported goods. Moreover, these tariffs are an artificial tax imposed on imports. Despite the benefits of trade, it is important to understand the concept behind these trade barriers and make an informed decision based on that information. The Basics of Tariffs and Trade Barriers