The present article tries to explain Tariff and its application.
Increasing unilateralism, Protectionism has thrown the world into a full-blown trade war. US-China, US-India, US-Europe, etc. All countries are imposing the tariff on each other products.In these scenario understanding tariff becomes imperative.
Tariff definition
Tariffs:-Tariff is a tax imposed by one country on the goods and services imported from another country.
Tariff Application
Use of Tariffs are restricting imports in order to
Promote the domestic industry: –Increased competition from imported goods can threaten domestic industries. So, import is restricted to promote indigenous products. For example, the tariff is imposed on Chinese Steel to increase its price in the domestic market and decrease its competitiveness.
Earn revenue:- Government may impose a tariff to earn revenue. Having said that now countries are reducing their dependence on tariffs as a source of revenue. India has consistently reduced import tariffs. The average import tariff rate was reduced from about 84% in 1990 to the lowest-ever level of 8.6% in 2010. Since the economic liberalization of 1990, India has consistently opened its domestic market to promote import. India’s imports of goods and services as a percentage of GDP is 23.64% which is too high.
Consumer protection:-Government may impose high tariffs in order to protect the local population from the side effects of imported products.
Geopolitical strategic reasons/Retaliation:-The government may impose tariffs for strategic geopolitical reasons. For example, India has raised tariffs on 28 items, including almonds, pulses, and walnut, exported from the US in retaliation to America’s withdrawal of preferential access for Indian products.US administration has used tariffs to try to force the Chinese to open their markets to U.S. competition.
National security:-Country may impose tariffs on products vital for national security. In some strategic industries, like the defense industry, tariffs can be used to ensure a country does not rely on trade for its supply of a good.
Tariffs increase the price of goods and services purchased from another country, making them less attractive to domestic consumers.
kinds of tariff
Specific tariffs:-Based on the unit, it is fixed. For eg.$15 tariffs on each pair of shoes imported,$300 tariff on each computer imported. This tariff can vary according to the type of goods imported. Specific tariffs are always referred to in reference to a unit or quantity of units/weight.
Ad valorem tariffs:-Ad valorem tariffs are Based on the value of the product. A fixed percentage is applied to the value of the product to determine the tariff amount. For, e.g., suppose the cost of a U.S. motorcycle Harley Davidson is $20,000.
If India imposes a 50% tariff on U.S. motorcycle Harley Davidson, then $20,000 now costs $30,000 to Indian consumers.
This tariff also keeps prices artificially high for Indian motorcycle buyers.
In order to understand international economics understanding of Tariff and its application is must.
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