Using Relevant Examples Discuss The Pros And Cons Of Imposing Tariffs On Imports (Case Study Sample)

Pros and Cons of Tariffs
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Pros and Cons of Tariffs
During the America’s formative years, tariffs were rather significant in boosting the economy. Through imposing tariffs on imports, America was able to protect its fledgling manufacturing industry as well as encouraging expansion in different sectors. Considerably, the tariffs imposed increased the price of cheaper foreign goods and encouraged consumers to acquire domestic products. Such a protectionist policy became instrumental in the development of America as an industrial state. Until the start of the twentieth century, tariffs have remained important as a way of raising government revenue. The American government collects tariffs on imports but not on exports because the constitution prohibits it. Tariffs have both a protective and income effect, but some are only for revenue. Tariffs are custom taxes levied on imports. Such a tax is normally applied as a percentage of the total cost of the product, including insurance and freight. Such a move raises the price of the product and gives an advantage to goods produced locally within that market. For this reason, tariffs are barriers to trade, and they are applied to protect domestic infant industries.
Tariffs are applied on an average percentage of 5. However, different states charge different rates depending on the product being protected. Taxes are either entirely or partly waived between nations with free trade agreements with each other. For instance, America has entered into agreements with more than 21 nations (Lombaerde, Langenhove, United Nations University, Garnet Network of Excellence, United Nations Conference on Trade and Development, & World Institute for Development Economics Research, 2007). Targeting FTA member states is a good strategy for conquering new markets as buyers pay less tariffs for goods made in America without FTAs.
The main idea of imposing tariffs is raising demand for domestic products while minimizing the volume of imports. This impacts consumers in a country applying the tariff in the form of costlier imports. In an instance when trading retaliates with their tariffs, it increases the cost of doing business for exporting developments. Many analysts feel that tariffs cause a decrease in product quality. Many establishments look for ways to reducing the costs of production for them to account tariffs. Ideally, tariffs are easier and transparent to administer compared with quotas. Such a move makes it easier for trading partners to negotiate them down or eliminate them.
To some extent, tariffs increase the entire cost of importing goods, an aspect that leads to a decline in consumer surplus. For instance, customers in the United Kingdom lose a lot from European Union’s vast tariffs, especially on agricultural products. In this case, most agricultural products are becoming more expensive owing to the high tariffs imposed to protect farmers under the European Union (Stein, 2007). This makes it rather challenging to think of any advantages from tariffs from customers. Maybe consumers benefit from the protection policies of domestic infant industries when these industries use the tariffs to expand in the long term. On the other hand, domestic producers producing the product benefits from the introduction of such tariffs because it makes their domestic goods more attractive compared to the imports. This is an advantage to many European farmers because they are protected from cheaper competition. However, many market analysts argue that such measures that restrict completion promotes inefficient establishments. Thus, domestic firms might not take the necessary improvements that they would have embraced without such tariffs in the long run.
Moreover, the introduction of tariffs might encourage retaliation. Therefore, other nations will place tariffs on exports. In regards to this, some exporting businesses might lose out and sell fewer exports. What is more, tariffs push domestic industries to become less efficient owing to reduced global competition. In some severe cases, tariffs promote trade wars as exporting states counter their own tariffs imposed on imported goods. In an instance when trading counterparts reciprocate with their own tariffs, it increases the cost of business operations for exporters. Such a situation might compromise the quality of production because businesses look for ways of reducing their cost of production.
Tariffs are applied to control trade because they raise the price of imports, making them more expensive to consumers. Primarily, the objective behind tariffs rests on decreasing the demand for imported goods. Further, tariffs provide additional sources of income for the country imposing at the expense of foreign producers and consumers. Tariffs promote the products of a particular state. For instance, when the American government imposes a tax on a certain import, the manufacturer chooses to lower their price to compensate for their tariff or even pass the entire cost to the consumer. In an instance when the producer passes on the cost to the American consumer through raising the price of the commodity, this promotes the circulation of American goods. Here, when the American establishments produce a similar commodity at the same price point, the foreign good becomes more expensive. In this regard, consumers opt for the less costly option and acquire the American product, and this gives American producers a clear advantage.
Tariffs are also beneficial in the sense that they increase government revenue. The United States government, for instance, collects revenue to finance its economic functions. This increased revenue is a clear advantage to the governments placing tariffs on imports. For instance, in the United States, import and customs levies accounted for 2 % of government revenue in 2008 (Vasudeva, 2014). On the other hand, tariffs might discourage trade. The major cornerstone of microeconomics mentions that governments, individuals, and businesses will always avoid tax. In an instance when American consumers opt to acquire a cheap American commodity, foreign developments become disadvantaged, and this leads to less trade with America. In this case, foreign producers are forced to lower their prices for them to compete with similar commodities produced in the United States. As well, these foreign establishments might choose to shun their trade with the United States and deliver their commodities to other countries with no tariffs. Such a reduction in trade causes producers to earn less from their goods which could imply that workers will lose their jobs in the country where such goods are produced.
Tariffs also reduce consumer choice. Today, individual consumer choice is a great benefit to a consumer in international trade. Imposing tariffs on imported goods increases the prices and restrict trade, which furt...