The global market place has much competition, as all countries are competing with each other for the same consumers. This produces a positive effect on the quality of goods and services around the world, as companies need to offer quality products at a price, which is competitive in the marketplace. This has lead to the innovation of new technologies, production becoming more efficient in order to keep costs down, higher quality levels throughout the market and the development of new products and services. One way of restricting international trade is by placing barriers to entry, and barriers to trade on the incoming goods and countries. Tariff barriers are non-tariff barriers are effectively government imposed restrictions on trade between itself and foreign countries.
Various tariffs which governments can impose tariffs are:
‘Revenue tariff’: The sole purpose of this tariff is to raise extra revenue for the government. The tariff is imposed on to products, particularily food items, where the importing country cannot grow or produce that item domestically. A great example of this would be coffee.
‘Protective tariff’ – Artificially inflating the price of imports in certain industries to protect the domestic market. If countries with low labour costs were to export labour intensive items in to the country, the likely hood is that the fall in price as a result of the increased competition and lower prices, would severely damage the market. This tariff thefore ensures that domestic industries are protected from excessive competition. This also lowers the balance of trade defecit and can be applied when the government is trying to protect new and developing industries who arent sufficiently established to compete in the global market.
‘Prohibitive’ – For extreme cases where an item may be dangerous to the economy or domestic markets, a prohibitive tariff is applied. The tariff rate can vary, but in some countries has been known to have inflated the item to over five times its original value. The cost of the product would be so high that it would no longer be economical for individuals or companies to import it, and alternative options would have to be found. Prohibitive tariffs are often known to be applied in a trade war, as a retaliation to barriers being imposed by other countries.
Tariffs imposed on the exporters artificially raise the price of their products in foreign markets and therfore making the product less competetive. This causes loss of revenue to the exporter, and loss of scalability which may have enabled the producer to have lower production costs per capita. Due to the inflated price the demand for that countries product will have decreased, and less revenue will result. Restrictions imposed upon a country that relies upon exportation can be very detrimental, causing their economy to suffer as a result. This lack of competitions not healthy for the market, as there is no incentive to be innovative, expand technologically or provide good quality products. It is detrimental for the consumer, as they have no choice, may be receiving poor quality products and have to pay a higher price for that privilege. This motivates the government to restrict barriers to trade, in the form of tariffs. Although they keep enough in place in order to maintain their own economic well being, and the safety of their consumers. I therefore support the application of barriers to trade which prevent unrestricted international trade, as they allow for the protection of the consumer, the economy, whilst still giving the domestic market the incentive it needs to become more efficient and technologically advanced.
Sources:
Tutor 2 u: A2 Macroeconomics / International economy:
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Wikipedia: Non-tariff barriers to trade:
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Wikipedia: Tariff:
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Secrets of international trading: tariff barriers:
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