| Tariff |
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A tariff is a tax on imported goods. When a ship arrives in port a customs officer inspects the contents and charges a tax according to the tariff formula. Since the goods cannot be landed until the tax is paid it is the easiest tax to collect, and the cost of collection is small. Smugglers of course seek to evade the tariff.
The distinction between protective and revenue tariffs is subtle: protective tariffs in addition to protecting local producers also raise revenue; revenue tariffs produce revenue but they also offer some protection to local producers. (A pure revenue tariff is a tax on goods not produced in the country, like coffee perhaps.) Tax, Tariff And Trade rules in modern times are usually set together because of their common impact on Industrial Policy , Investment Policy , and Agricultural Policy . A Trade Bloc is a group of allied countries agreeing to minimize or eliminate tariffs against trade with each other, and possibly to impose protective tariffs on imports from outside the bloc. A Customs Union has a common external tariff, and, according to an agreed formula, the participating countries share the revenues from tariffs on goods entering the customs union. If a country's major industries lose to foreign competition, the loss of jobs and tax revenue can severely impair parts of that country's economy. Protective tariffs have been used as a measure against this possibility. However, protective tariffs have disadvantages as well. The most notable is that they increase the price of the good subject to the tariff, disadvantaging consumers of that good or manufacturers who use that good to produce something else: for example a tariff on food can increase Poverty , while a tariff on steel can make automobile manufacture less competitive. They can also backfire if countries whose trade is disadvantaged by the tariff impose tariffs of their own, resulting in a Trade War and disadvantaging both sides. There are two main ways of implementing a tariff:
Adherents of Supply-side Economics sometimes refer to domestic taxes, such as income taxes, as being a "tariff" affecting inter-household trade. Economic analysis Some Economic theories hold that tariffs are a harmful interference with the individual Freedom and the laws of the Free Market . They believe that it is unfair toward consumers and generally disadvantageous for a country t artificially maintain an inefficient industry, and that it is better to allow it to collapse and to allow a new one to develop in its place. The opposition to all tariffs is part of the Free Trade principle; the World Trade Organization aims to reduce tariffs and to avoid countries discriminating between other countries when applying tariffs.
Let’s say we now introduce a tariff of $10/unit on imports. This has the effect of shifting the world supply curve vertically by $10 to SW + Tariff. Again, this will create a redistribution of surplus within the model. We see that consumer surplus will decrease to the area '''C, E''' and '''K''', which is a net loss of the area '''C, E, F''' and '''J'''. This now makes consumers unambiguously worse off than under a Free Trade regime, but still better off than under a system without trade. Producer surplus has increased, as they are now receiving an extra $10 per sale, to the area '''C, D''' and '''L'''. This is a net gain of the area '''C, D, F''' and '''G'''. With this increase in price the level of domestic production has increased from '''Y1''' to '''Y3''', while the level of imports has reduced to '''Y4''' minus '''Y3'''.
Infant industry argument See Also: Infant industry argument Some proponents of Protectionism claim that imposing tariffs that help protect newly founded infant industries allows those domestic industries to grow and become self sufficient within the international economy once they reach a reasonable size. History of Tariffs United States See Also: Tariff in American history See also
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