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UNIT VIII ESSAY - IMPACT OF TARIFFS ON GLOBAL TRADE - PRO’S AND CON’S

Unit VIII Essay - Impact of Tariffs on Global Trade - Pro's and Con's

Tariffs are taxes imposed on imported goods and services. These goods and services come into or from a country. Tariffs are used to monitor trade. When tariffs increase the price of imported goods and services, it tends to become more expensive to consumers. Therefore, a specific tariff is levied as a fixed fee based on the type of item for instance $600 on every motorbike. Tariffs provide additional revenue for governments and domestic producers at the expense of consumers and foreign producers. Tariffs are one of several tools available or used to shape trade policy of a country. (Investopedia, 2003)

Governments may be found imposing tariffs to raise more revenue or to protect domestic industries from severe foreign competition, since consumers will automatically choose to purchase foreign produced goods because they will be cheaper. While the local consumers are not legally prohibited from purchasing imported goods, tariffs make those goods more expensive, which give consumers an incentive to buy domestically produced goods that seem competitively priced or less expensive by comparison. When consumers do such comparisons they often find their choices have been limited by those tariffs. Tariffs can make a country or domestic industries less functional, since they are not subjected to global competition. These differences can also lead to trade wars as exporting countries reciprocate with their own tariffs on imported goods. This is where groups such as World Trade Organizations come in and act to combat the use of egregious tariffs. (Wto.org, 2016)

For instance at Hearings, Trade Gets Personal The New York Times, December 9, 1986, “The Commerce Department came to air the pros and cons of higher tariffs on softwood lumber from Canada . The debate was all very civil, that is very low-key. But the reality was that a lot of money was at issue and there were big-name lawyers there to argue determinedly for each side. The colossal United States trade deficit has triggered strong demand for protection from a broad swath of industry and workers hurt by surging imports. Yet reliance on imports by other sectors of the economy, like consumers, has created similarly strong resistance because higher tariffs mean higher prices.” Consumers will always resist higher tariffs for the fear of price increases and hence could prefer to consume locally produced goods and service rather than to import goods and services. These hearings to sort out the opposing arguments are scheduled after a preliminary finding by the Commerce Department that an import has entered the United States at unfairly low prices. “The department then proposes a countervailing duty to offset the competitive advantage. In the case of the Canadian lumber, which involves $3 billion worth of trade, the department made its preliminary finding Oct. 16, deciding that a 15 percent tariff was necessary to equalize the unfair competition because of the lower fees Canadian governments charge for cutting timber from public lands.” (CLYDE H. FARNSWORTH, 2016).

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This hearing was called to offer a chance to everyone to have some input in the final decision. The Canadians are working on subsidizing their lumber companies' sales in the United States, which unfairly curbs jobs and profits in the domestic. (CLYDE H. FARNSWORTH, 2016)

The governments may find some justifications to use tariffs and some of them include to protect domestic jobs. This is if that consumers purchase less expensive and foreign goods, the workers who produce such goods domestically might lose their jobs. Therefore the government may find that excuse for its justification on imposing heavy tariffs on goods and services. Next is to protect infant industries. “When a country wants to develop its own industry producing a particular line of goods or services, the state will use tariffs to make it more expensive for consumers to purchase the foreign version of that good (CLYDE H. FARNSWORTH, 2016)..” My understanding is that they will buy the domestic version instead and help that industry grow.

Another one is to retaliate against a trading partner. If one country does not play by the trade rules such countries previously agreed on, the country which feels jilted might impose tariffs on its partner country goods as a punishment. These higher prices caused by the tariff should cause purchases to fall. When purchases fall the goods and services in that line does not sell effectively thus losses may arose. Lastly is to protect consumers. If a state thinks a foreign good might be harmful to her country, it might definitely implement a tariff to discourage consumers from buying such products (CLYDE H. FARNSWORTH, 2016). That way the state could have discouraged the huge import of that line of products because they can be very costly.

If a country is sought to grow strong in a new industry, tariffs will work best as protectionist. They protect it from foreign competitors. This allows companies in the new industry time to learn how to produce the good efficiently, and develop their own competitive advantages . And since time is the essence of everything and given humble time they will definitely make a stable structure thus ensured prosperity. Protectionism can also create temporary jobs for domestic workers. Since domestic companies are protected by tariffs, quotas or subsidies, they will majorly hire locally. This will occur until other countries retaliate by erecting their own protectionism within that industry. Thus the initial advantages will be enjoyed by the companies which roll in the industry faster than the other. (Amosweb.com, 2016)

According to (Charlotte Kyakwera, 2007) there was hiking of tariffs in the hospital bills in Kigali Rwanda. This is often done in less developed countries. For example Stevens attributed the hike to a current deficit gap of 135 percent of cost cover revenue, which he said was caused by repeated tariff reductions in the previous years, and believes the increase would help close the existing gap by 50 percent and to attain responsible and healthy financial conditions. This did not go as it was expected. South Africa also adopted the Rwandan type of imposing tariffs. Though they did some adjustment, the hospital tariffs continued to appear high and unaffordable by the general population. "This fee was, however, considered highly expensive for the population and gave the hospital a reputation that it only catered for the so-called 'elite," Stevens was quoted as saying. They considered such bills could only be met by the rich people in the society and not the poor who cannot afford them. Therefore the hospital will soon be compared to a five-star hotel, yet the meals are compulsory and costly for hospitalized patients. This will be so because everyone prefers to feed patients with highly nutritious foods (Charlotte Kyakwera, 2007).

Like when imposing the steel tariffs the editorial endorsing them completely ignores the devastating consequences of the tariffs have had on steel-consuming companies in the United States. Before declaring the steel tariffs a success, a closer look at the downside of tariffs is in order this will help do abase a analysis on whether it will be of importance or a source of losses. The steel tariffs have led to price increases, supply disruptions and massive business and financial losses to steel consumers in the United States. The United States steel industry has been protected from international competition through tariffs, quotas, duties, voluntary restraint agreements and other trade sanctions by presidential administrations dating to Lyndon B. Johnson (Washington times, 2003)

Imposing high and permanent tariffs or quotas on imports is a protectionism and contrary to the free-market philosophy. Thus improved productivity has always been the success of the day in the past can easily outdo the challenges of the new global economy. It is clear that if the trading partners lower their trading barriers the economy of one country will always be at a rise. Here tax cuts will help ease the problem, but a country will still face seemingly insurmountable challenges from the class of socialist and communist economies that are always the low-cost producers on the global stage. Therefore the success at home is always threatened. If only the people can find a way to balance this differences they will always have a standing economy.

In conclusion I can point out that, trade protectionism weakens the industry. That is without competition, the companies within the industry would not innovate, expand and improve on their products or services. Finally, consumers will pay more money for low quality products than they would get them from foreign competitors or imported goods and services. Moreover Job is a result of declining competitiveness of the economy. This is particularly true for the engineering industry and science. Increased trade opens new markets for businesses to sell their products and services. Increasing application of protectionism will further slow or weaken the economic growth and cause more layoffs.

References

Albert O. Hirschman, Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations and States, Harvard University Press, 1970

Amosweb.com,. (2016). AmosWEB is Economics: Encyclonomic WEB*pedia. Retrieved 4 February 2016, from http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=tariffs

CLYDE H. FARNSWORTH, S. (2016). WASHINGTON TALK; At Hearings, Trade Gets Personal. Nytimes.com. Retrieved 4 February 2016, from http://www.nytimes.com/1986/12/09/us/washington-talk-at-hearings-trade-gets-personal.html

Investopedia,. (2003). Tariff Definition | Investopedia. Retrieved 4 February 2016, from http://www.investopedia.com/terms/t/tariff.asp

Richard W. Ressler North Olmsted, Ohio The Washington Times Full Text: COPYRIGHT 2003 News World Communications, Inc. Source Citation "Steel tariffs, pro and con." Washington Times [Washington, DC] 22 Jan. 2003: A20. Opposing Viewpoints in Context. Web. 2 Jan. 2016. Document URL

AllAfrica Global Media (allAfrica.com). by Charlotte Kyakwera Full Text: COPYRIGHT 2007 COMTEX News Network, Inc. Africa News Service. News Provider

Wto.org,. (2016). WTO | Tariffs. Retrieved 4 February 2016, from https://www.wto.org/english/tratop_e/tariffs_e/tariffs_e.htm