pros and cons of tariffs

Pros and Cons of Tariff
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Pros and Cons of Tariffs
Tariff refers to the tax imposed on the export and import goods. In general, tariff refers to the import duties charged when goods are brought in the country. Tariff charge is a common exercise for every country because it serves many purposes. The most common purpose of the tariff charge is to raise the country’s revenue. Additionally, tariffs in many countries are meant to protect local or domestic markets from foreign competition. This is because the lack of tariffs in a country is likely to lead to more imports hence flooding the local or domestic markets of a country. This is done through the use of tariffs quotas of all goods imported into the country (Vaknin, 2014). It is important to note that tariffs help to fulfill the punitive function of the country. Punitive tariffs, in this case, are meant to remedy trade alteration as a result of the measures exercised by other countries. A good example, in this case, is the antidumping pact which permits states to adopt the antidumping –rates to correct the existing scenarios of discarding in the country.
The most common effect of import charge is to increase the local charges in the state. A tariff prompted cost increase, forms a hole among charges in the exporting and importing states. This leads to the rise in production of the importing country, while the general demand falls hence creating an important need to protect industries of the country.

It is significant to note that tariff imposition in a country is accompanied by several advantages as well as disadvantages. These pros and cons are likely are equally enjoyed by both locals and the foreign traders depending on the tariff rates. Discussed below are pros and cons associated with the tariff.
Pros of tariffs:
Tariffs aid in the increase in prices of imports is hence causing a reduction in foreign products in the market. In the UK for example, clients have escaped from the wide tariffs of EU on the products of agriculture. It is evident that most of the agricultural goods are charged high prices due to the fact that high tariffs are placed with the aim of protecting EU farmers.
Consumers benefit from tariffs through the protection accrued to domestic industries whereby they use the charges to improve native producers. The main reason behind improving the local producers is to enhance the quality of their products compared to the goods acquired from the foreign countries. Local farmers tend to benefit from agricultural tariffs because they have obtained protection from foreign competition.
The government benefits from tariffs whereby particular charges imposed on the firm products leads to an increase in the administration revenue. This leads to better developments in a country because of the availability of more funds to finance the operation of various sectors as well as to expand the projects of the country. It aids in growth and development of infrastructure, communication networks, learning institutions among many other sectors of a country. By this, citizens are assured of better living conditions and job acquisition through self-employments.
Tariffs help to enhance the ability of trading countries to obtain benefits from economic advantage. This is because countries that have adequate resources required in the production of certain products possess the power to supply to other countries at their desired cost.
Consumers benefit from reduced tariffs rates through purchasing of goods or acquiring services at reduced prices. It also gives clients the freedom to choose from a variety of goods and services contrary to the situation where a monopoly exists in the market due to high tariff charges.
Tariffs lead to the creation of employment prospects; this is because of the increase in the government’s ability to raise a substantial amount of money capable of financing the employment of workers to aid in tariff collection process. As the market expands through trade activities, more employees are required to ensure no tariff avoidance by the trading countries.
Moreover, tariffs enhance foreign exchange in the sense that once a country imports products, it is likely to receive revenue in terms of foreign currencies from its trading partner. The rigid currencies funded by the nations that imports products can be utilized to pay for the goods obtained from foreign at a reduced cost due to the availability of the foreign currency. This not only benefits the government and suppliers but also the consumers and at the end leads to growth and development of global trade.
Additionally, tariffs serve the advantage of a reduction in the prices of products. Due to the fact that at reduced tariff rates, products can be imported from different countries hence causing a surplus in the market and this leads to price reduction. This also ensures an adequate supply of product in the state because low tariff charge is likely to encourage trade by different countries. An adequate supply of goods in the market implies that there is no shortage hence ensuring the stability of prices in the market.
Tariffs act as a key to economic development. This is because more revenue is earned from the trading activities which are used for the economic development of the country. Since tariffs revenue is earned at minimal cost by the country, they tend to uplift the economy of the country more as compared to any other revenue earned from anywhere. This advancement in country’s economy is advantageous to both the government and citizens of the respective state.
Despite the numerous advantages associated with the tariffs imposition in a country, it is also associated with several disadvantages as discussed below.
Tariffs imposition in a country may make domestic industries less efficient because of abridged global competition (Sun & Nie, 2015). In this case, it is important to understand that the existence of competition in the local market from foreign traders helps local traders to be more creative in producing products in the market. This is because the lack of efficiency in their production is likely to lead to the low demand for their product in the market due to stiff competition.
Additionally, trade tariffs in the country may lead to transaction wars as the exporting countries counter the existing tariffs by designing their own rates on the imported products. The existence of this retaliation in the market leads to the rise in the cost of carrying out a trade for the exporters. In this case, traders are also likely to compromise with the quality of their product in the market as they search for better ways of reducing the cost of transacting as well as production.
Since tariffs refer to the amount charged on the goods and services, it is significant to understand that they lead to the general increase in the price of the imported product in the market hence making them expensive to the final consumers. This, in turn, leads to the low demand of the imported product as customers go for the domestic products that are lowly priced. In this regard, the imposition of tariffs might cause a business to slow down as a result of the general increase in the prices of products in the market. Many business organizations are likely to divert their attention of trade to other countries where tariffs rates are low.
Moreover, tariffs fuels in the growth of monopoly in the market. In this case, an increase in rates restricts foreign traders from entering into the local market hence causing the few producers in the market to assume the monopolistic powers. This leads to poor product and services offer as well as extraction of the local consumers in terms of increase in prices by the monopolists in the industry.
Finally, the imposition of tariffs leads the local consumers to pay a premium to get access to better-produced products (Cavusgil et al, 2014). This might lead to reduced standards of living of citizens due to the lack of access to quality products from the foreign market. It is also worth noting that tariffs in most cases deny different nations the ability to reap benefit associated with the international market. In this case, consumers are limited to the variety of product from which they can choose from in the market.
In conclusion, it is clear from this discussion that tariffs are associated with both benefit and drawbacks that every country should access before making a decision on whether to use it in the trading activities with other nations.
Reference List
Vaknin, S. (2014). Foreign direct investments (FDI)-pros and cons. Available from www:< http://www. globalpolitician. com/print. asp.
Sun, P., & Nie, P. Y. (2015). A comparative study of feed-in tariff and renewable portfolio standard policy in renewable energy industry. Renewable Energy, 74, 255-262.
Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. Pearson Australia.
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