A tariff is a tax on imports or exports between . It is a form of regulation of foreign trade. It is a policy that taxes foreign products to encourage or protect domestic industry. It helps limit trade deficits. The tariff is historically used to protect infant industries and to allow import substitution industrialization.
in history, free trade is the exception and protectionism the rule.
The important point is not only that the crisis started at the height of free trade, but that it ended around 1892-1894, just as the return to protectionism became effective in continental Europe...It is almost certain that free trade coincided with the depression for which it was probably the cause, while protectionism was probably at the origin of growth and development in most of the current developed countrie.
In Europe, the slowdown in GNP growth was mainly the result of the decline in agricultural production growth; European tariff barriers were not completely eliminated on manufactured products, whereas they were totally eliminated on agricultural products in all countries.This agricultural crisis in continental Europe can be explained almost exclusively by the influx of foreign cereals, which became possible thanks to the abolition of tariff protection on cereals in continental Europe between 1866 and 1872. It was mainly the farmers who suffered because cheap imports led to the collapse of agricultural commodity prices; the farmers' standard of living fell or stagnated in almost all continental European countries. But it also affected overall demand for industrial goods and the construction sector. In France, which was an agrarian economy, wheat imports, which reached 0.3% of national production in 1851/1860, rose to 19% in 1888/1892. In Belgium, this percentage rose from 6% around 1850 to more than 100% around 1890.
During the 1870s and 1880s, the United States was Europe's largest supplier of cereals. There was an increasing trade imbalance between Europe and the United States until the 1900s, given that the United States had remained protectionist. The United States was (almost) free trade before 1861, and high tariff afterwards. It experienced a period of strong growth while Europe was in the midst of a depression. Around 1870, Europe's trade deficit with America represented 5% to 6% of the region's imports. It reached 32% in 1890 and 59% around 1900.
Bairoch also notes that it was when all countries were strengthening protectionism that the growth rate reached its highest level in continental Europe: indeed, GNP growth rose from 1.1%/year in the years 1850-1870 (protectionist period) to 0.2%/year in the years 1870-1890 (free trade period). And it was the countries that had returned to protectionism that mainly benefited from the economic recovery: during the protectionist phase (after 1892), GNP growth was 1.5% in Mainland Europe, while in the United Kingdom, which continued free trade, the rate reached about 0.7%. In all countries except Italy, and regardless of the date of policy review, the adoption of protectionist measures (after 1892) was followed by a sharp acceleration in growth in the first ten years; in the following decade, which is the decade of increased protection, there was a further acceleration in growth. In contrast, in the United Kingdom, where there was no change in free trade policy, there was an initial period of stagnation followed by a sharp decline in the growth rate. In 1892, France reintroduced strong protectionism: over the previous ten years, its GNP was 1.2%/year. In the first ten years after the protectionist change, GNP was 1.3%/year and the following decade it rose to 1.5%/year. The differences are even more marked in the case of Germany: after the introduction of new protectionist measures in 1885, GNP increased from 1.3% in the previous decade, to 3.1% in the following decade and to 2.9% in the second decade.
Protectionism has always coincided in time with industrialization and economic development and is even at the origin of it.
the system of pure competition and perfectly applied for a very long time ..., free trade was applied in Turkey and what did it produce? It detroyed some of the best manufactures in the world.
Before independence, Latin American countries were under the domination of Spain and Portugal. The United Kingdom's intervention had greatly helped most of these countries to achieve political independence in the 19th century (mostly between 1804 and 1822). The United Kingdom was thus able to sign many trade treaties that opened the markets of these countries to British and European manufactured goods. The independence of most of these countries therefore paradoxically leads to a phase of deindustrialization because it facilitates the penetration of products from countries more advanced than Portugal and Spain. Thanks to the influence of North America, most Latin American countries changed their trade policies during the period 1870-1890 and imposed protective tariffs to support industrialization.
Most economists hold the opinion that the tariff act did not greatly worsen the great depression:
Milton Friedman held the opinion that the Smoot–Hawley tariff of 1930 did not cause the Great Depression, instead he blamed the lack of sufficient action on the part of the Federal Reserve. Douglas A. Irwin wrote: "most economists, both liberal and conservative, doubt that Smoot–Hawley played much of a role in the subsequent contraction".
Peter Temin, an economist at the Massachusetts Institute of Technology, explained that a tariff is an expansionary policy, like a devaluation as it diverts demand from foreign to home producers. He noted that exports were 7 percent of GNP in 1929, they fell by 1.5 percent of 1929 GNP in the next two years and the fall was offset by the increase in domestic demand from tariff. He concluded that contrary the popular argument, contractionary effect of the tariff was small.
William Bernstein wrote: "Between 1929 and 1932, real GDP fell 17 percent worldwide, and by 26 percent in the United States, but most economic historians now believe that only a miniscule part of that huge loss of both world GDP and the United States’ GDP can be ascribed to the tariff wars. .. At the time of Smoot-Hawley's passage, trade volume accounted for only about 9 percent of world economic output. Had all international trade been eliminated, and had no domestic use for the previously exported goods been found, world GDP would have fallen by the same amount — 9 percent. Between 1930 and 1933, worldwide trade volume fell off by one-third to one-half. Depending on how the falloff is measured, this computes to 3 to 5 percent of world GDP, and these losses were partially made up by more expensive domestic goods. Thus, the damage done could not possibly have exceeded 1 or 2 percent of world GDP — nowhere near the 17 percent falloff seen during the Great Depression... The inescapable conclusion: contrary to public perception, Smoot-Hawley did not cause, or even significantly deepen, the Great Depression.
Nobel laureate Maurice Allais argued that: First, most of the trade contraction occurred between January 1930 and July 1932, before most protectionist measures were introduced, except for the limited measures applied by the United States in the summer of 1930. It was therefore the collapse of international liquidity that caused the contraction of trade8, not customs tariffs. Second, domestic output in the major industrialized countries fell faster than international trade contracted, so it was not the contraction in foreign trade that caused the depression, but rather the reverse (it was the fall in domestic demand in the countries that caused the contraction in foreign trade). This indicates that it is the domestic growth of countries that generate foreign trade, not the reverse. So protecting domestic production through tariffs is more important than safeguarding foreign trade. Maurice Allais concludes that higher trade barriers were a means of protecting domestic demand from external shocks, deflation, and deregulation of competition in the global labour market.
At the beginning of the 19th century, Britain's average tariff on manufactured goods was roughly 51 percent, the highest of any major nation in Europe. And even after Britain embraced free trade in most goods, it continued to tightly regulate trade in strategic capital goods, such as the machinery for the mass production of textiles. Thus seen, according to Bairoch, Britain's technological lead had been achieved "behind high and long-lasting tariff barriers".
In 1800, Great Britain with about 10% of the European population, provided 29% of all pig iron produced in Europe, a proportion that reached 45% in 1830; industrial production per capita was even more significant: in 1830 it was 250% higher than in the rest of Europe compared to 110% in 1800. In 1846, the industrialization rate per capita was more than double that of its closest competitors such as France, Belgium, Germany, Switzerland and the United States.
Tariffs were reduced in 1833 and the Corn Law was repealed in 1846, which amounted to free trade in food. (The Corn Laws were passed in 1815 to restrict wheat imports and guarantee British farmers' incomes ). This devastated Britain's old rural economy. Tariffs on many manufactured goods have also been abolished. But as free trade progressed in the United Kingdom, protectionism continued on the continent. British elites expected that thanks to free trade their lead in shipping, technology, scale economies and financial infrastructure to be self-reinforcing and thus last indefinitely. Britain practiced free trade unilaterally in the vain hope of imitation, but the United States emerged from the Civil War even more explicitly protectionist than before, Germany under Bismarck turned in this direction in 1879, and the rest of Europe followed. During the 1880s and 1890s, tariffs went up in Sweden, Italy, France, Austria-Hungary and Spain.
Britain's economy still grew, but inexorably lagged: from 1870 to 1913, industrial production rose an average of 4.7 percent per year in the U.S., 4.1 percent in Germany, but only 2.1 percent in Britain. It was surpassed economically by the U.S. around 1880. Britain's lead in textiles and steelheld eroded as other nations caught up. Britain then fell behind as new industries, using more advanced technology, emerged after 1870 in states that still practiced protectionism.
On 15 June 1903, the Secretary of State for Foreign Affairs, Henry] made a speech in the House of Lords defending fiscal retaliation against countries with high tariffs and whose governments subsidised products for sale in Britain (known as 'bounty-fed products', also called dumping). The retaliation was to be done by threatening to impose tariffs in response against that country's goods. His Liberal Unionists had split from the Liberals, who promoted Free Trade, and the speech was a landmark in the group's slide towards Protectionism. Landsdowne argued that threatening retaliatory tariffs was similar to getting respect in a room of armed men by showing a big revolver (his exact words were "a rather larger revolver than everybody else's"). The "Big Revolver" became a catchphrase of the day, often used in speeches and cartoons
Fundamentally, the country believed that free trade was optimal as a permanent policy and was satisfied with laissez faire absence of industrial policy. But contrary to British belief, free trade did not improve the economic situation and increased competition from foreign production eventually devastated Britain's old rural economy. Britain finally abandoned free trade in 1932 until 1950.
Protectionism was an American tradition: according to Paul Bairoch, the United States was "the homeland and bastion of modern protectionism" since the end of the 18th century and until after World War II.
The intellectual leader of the high tariff movement was Alexander Hamilton, the first Secretary of the Treasury of the United States (1789-1795) and Daniel Raymond were the first theorists to present the infant industry argument, not the German economist Friedrich List. Hamilton feared that Britain's policy towards the colonies would condemn the United States to be only producers of agricultural products and raw materials. Washington and Hamilton believed that political independence was predicated upon economic independence. Increasing the domestic supply of manufactured goods, particularly war materials, was seen as an issue of national security. Hamilton was the first to use the term "infant industries" and to introduce the infant industry argument to the forefront of economic thinking. In Report on Manufactures which is considered the first text to express modern protectionist theory, he called for customs barriers to allow American industrial development and to help protect infant industries, including bounties (subsidies) derived in part from those tariffs. Hamilton explained that despite an initial “increase of price” caused by regulations that control foreign competition, once a “domestic manufacture has attained to perfection… it invariably becomes cheaper”. In Hamilton's day he was never able to obtain the high tariff he wanted.
The Tariff Act was the second bill of the Republic signed by President George Washington allowing Congress to impose a fixed tariff of 5% on all imports, with a few exceptions. The main purpose was to provide revenue to fund the national government. In 1812, all tariffs were increased to 25% due to the war. There was a brief episode of free trade from 1846 but the panic of 1857 eventually led to higher tariff demands than President James Buchanan, signed in 1861 (Morrill Tariff).
In the 19th century, statesmen such as Senator Henry Clay continued Hamilton's themes within the Whig Party under the name "American System. Before 1860 they were always defeated by the low-tariff Democrats.William K. Bolt, Tariff Wars and the Politics of Jacksonian America (2017) covers 1816 to 1861.
The American Civil War (1861-1865) allowed the industrial Northeast to get the high tariffs it wanted. The money was needed to finance the war and war debt, but for the next half-century high tariffs were a policy designed to encourage rapid industrialisation and protect the high American wage rates. The Democrats called for low tariffs help poor consumers, but they always failed until 1913. The Republican Party, which is heir to the Whigs, makes protectionism a central theme in its electoral platforms. According to the party, it is right to favour domestic producers and tax foreigners and consumers of imported luxury products. Republicans prioritize the protection function, while the need to provide revenue to the federal budget is only a secondary objective.
In the early 1860s, Europe and the United States pursued completely different trade policies. The 1860s were a period of growing protectionism in the United States, while the European free trade phase lasted from 1860 to 1892. The tariff average rate on imports of manufactured goods was in 1875 from 40% to 50% in the United States against 9% to 12% in continental Europe at the height of free trade. Between 1850 and 1870 the annual growth rate of GNP per capita was 1.8%, 2.1% between 1870 and 1890 and 2% between 1890 and 1910; the best twenty years of economic growth were therefore those of the most protectionist period (between 1870 and 1890), while European countries were following a free trade policy.
After the United States overtook European industries in the 1890s, the argument for the Mckinley tariff was no longer to protect the "infant industry" but rather to maintain workers' wage levels, improve protection of the agricultural sector and the principle of reciprocity.
Alfred Eckes Jr notes that from 1871 to 1913, the average U.S. tariff on dutiable imports never fell below 38 percent and gross national product (GNP) grew 4.3 percent annually, twice the pace in free trade Britain and well above the U.S. average in the 20th century (Opening America's Market: U.S. Foreign Trade Policy Since 1776, Alfred Eckes Jr). According to Ian Fletcher, the protectionist periode "was the golden age of American industry, when America’s economic performance surpassed the rest of the world by the greatest margin".
/ref> For the period 2000-2007, the increase in the median real wage was only 0,1 %, while the median household income fell by 0,3 % per year in real terms. The reduction was greater for the poorest households. During the same period, the poorest 20% of the population saw their income fall by 0,7 % per year. Since 2000, the increase in hourly wages has not kept pace with productivity gains.
While the dumping policies of some countries have had a devastating effect on developed economies, they have also largely destabilized developing countries. Studies on the effects of free trade show that the gains induced by WTO rules for developing countries are very small. This has reduced the gain for these countries from an estimated $539 billion in the 2003 LINKAGE model to $22 billion in the 2005 GTAP model. The 2005 LINKAGE version also reduced gains to 90 billion. As for the "Doha Round" /ref> However, the models used are actually designed to maximize the positive effects of trade liberalization. They are characterized by the absence of taking into account the loss of income caused by the end of tariff barriers.http://fordschool.umich.edu/rsie/workingpapers/Papers476-500/r489.pdf In fact, since the group of "developing" countries includes China and India, when the various effects of trade liberalization, not all of which are included in the GTAP or LINKAGE models, are taken into account, the balance is directly negative for the other countries, as the cumulative gain of China and India far exceeds the gain of the "developing" countries. Free trade has not been a factor in the development of the poorest countries.
The insolvency of the vast majority of households is at the centre of the mortgage debt crisis that has been experienced in the United States, the United Kingdom and Spain. However, this crisis in private agents' indebtedness is a direct result of the liberalization of international trade. At the heart of the crisis, therefore, are not the banks, whose disorders are only a symptom here, but free trade, whose effects have come to combine with those of liberalized finance.
Thus, globalization has created imbalances, such as wage deflation in developed economies. These imbalances in turn led to sudden increases in the debt of private actors. And this led to an insolvency crisis. Finally, the crises follow one another more and more quickly, and they are more and more brutal. The establishment of protectionist measures such as quotas and tariffs is therefore the essential condition for protecting countries' domestic markets and increasing wages. This could allow the reconstruction of the internal market on a stable basis, with a significant improvement in the solvency of both households and businesses.
For developed countries that have implemented free trade, the work of E.F. Denison on growth factors in the United States and Western Europe between 1950 and 1962 shows that the positive effects on growth of trade liberalization have been negligible in the United States, while in Western Europe it contributed to a weighted average of only 2% of total economic growth. J W W Kendrick whose work deals with GNP growth in the United States comes to the same conclusion.
In 2003, the World Bank estimated the gains from the transition to WTO free trade rules for "developing" countries at only $539 billion (a small amount). In addition, the more recent GTAP 2005 model revised this estimate downward to only $4 billion. Knowing that all the gains are attributed to China and India, this means that, except for these two countries, the addition is very largely negative for all the other "developing" /ref>
Poor countries have become even poorer since they removed economic protections in the early 1980s. In 2003, 54 nations were poorer than they were in 1990 (UN Human Development Report 2003, p. 34). During the 1960s and 1970s, when countries had more protection, the world economy grew much faster than today - world per capita income grew by about 3% per year, while over the next 20 years (free trade period) it grew by only about 2%. Growth in per capita income in developed countries increased from 3.2%/year between 1960 and 1980 to 2.2%/year between 1980 and 1999, while in developing countries it increased from 3% to 1.5%/year. Without the strong growth of the past two decades in China and India, which have followed other policies, the rate would have been even lower.
In Latin America, the annual growth rate of per capita income increased from 3.1%/year between 1960 and 1980 (protectionist period) to 0.6%/year between 1980 and 1999 (free trade period). The crisis was even more profound in other regions: over the next 20 years, per capita income declined in the Middle East and North Africa (at an annual rate of -0.2%), while it increased by 2.5%/year between 1960 and 1980. Finally, since the beginning of their economic transition, most former communist countries have experienced the fastest declines in living standards in modern history, and many of them have not even regained half the level of per capita income under communism.
Sub-Saharan African countries have a lower per capita income in 2003 than 40 years earlier (Ndulu, World Bank, 2007, p. 33).http://siteresources.worldbank.org/AFRICAEXT/Resources/AFR_Growth_Advance_Edition.pdf By practicing free trade, Africa is less industrialized today than it was four decades ago. The contribution of the African manufacturing sector to the continent's gross domestic product declined from 12% in 1980 to 11% in 2013, and has remained stagnant in recent years, according to the United Nations Economic Commission for Africa (ECA). It is estimated that Africa accounted for more than 3% of world manufacturing output in the 1970s, and this percentage has declined by half since. Between 1980 and 2000, per capita income in sub-Saharan Africa fell by 9%, while interventionist policies had increased it by 37% over the previous two decades. Economic growth returned to Africa in the 2000s but was mainly driven by the commodity price boom, fueled by China's rapid growth in need of natural resources. But even after a decade of unprecedented expansion, per capita income in the region in 2012 is only 10% higher than in 1980, given the economic depression caused by laissez-faire policies in the 1980s and 1990s. Moreover, by applying the laissez-faire approach, few African countries have been able to convert their recent resources into a more sustainable industrial base. And over the past decade, many African countries have increased, rather than reduced, their dependence on primary commodities, whose notoriously large price fluctuations make sustained growth difficult.
However, some African countries have managed to enter an industrialization phase: Ethiopia, Rwanda and, to a lesser extent, Tanzania. The common denominator among them is that they have abandoned free trade and adopted policies that target and promote their own manufacturing industries. They have pursued a "developmental state model" where governments manage and regulate economies. Thus, since 2006, the Ethiopian manufacturing sector has grown at an average annual rate of more than 10%, although from a very low base.
Keynes was the principal author of a proposal – the so-called Keynes Plan – for an International Clearing Union. The two governing principles of the plan were that the problem of settling outstanding balances should be solved by 'creating' additional 'international money', and that debtor and creditor should be treated almost alike as disturbers of equilibrium. The new system is not founded on free-trade (liberalisationhttp://www.investopedia.com/terms/d/deregulate.asp of foreign tradehttp://www.investopedia.com/terms/t/trade-liberalization.asp) but rather on the regulation of international trade, in order to eliminate trade imbalances: the nations with a surplus would have an incentive to reduce it, and in doing so they would automatically clear other nations deficits.http://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1127&context=peri_workingpapers
His view was supported by many economists and commentators at the time. In the words of Geoffrey Crowther, then editor of The Economist, "If the economic relationships between naticions are not, by one means or another, brought fairly close to balance, then there is no set of finanal arrangements that can rescue the world from the impoverishing results of chaos.". Influenced by Keynes, economics texts in the immediate post-war period put a significant emphasis on balance in trade. For example, the second edition of the popular introductory textbook, An Outline of Money, devoted the last three of its ten chapters to questions of foreign exchange management and in particular the 'problem of balance'. However, in more recent years, since the end of the Bretton Woods system in 1971, with the increasing influence of Monetarist schools of thought in the 1980s, and particularly in the face of large sustained trade imbalances, these concerns – and particularly concerns about the destabilising effects of large trade surpluses – have largely disappeared from mainstream economics discourseSee for example, Krugman, P and Wells, R (2006). "Economics", Worth Publishers and Keynes' insights have slipped from view.although see Duncan, R (2005). "The Dollar Crisis: Causes, Consequences, Cures", Wiley They are receiving some attention again in the wake of the financial crisis of 2007–08.See for example,
Neoclassical economists, for their part, argue that the scale of these movements of workers and capital is negligible. They developed the theory of price compensation by factor that makes these movements superfluous. In practice, however, workers move in large numbers from one country to another. Today, labour migration is truly a global phenomenon. And, with the reduction in transport and communication costs, capital has become increasingly mobile and frequently moves from one country to another. Moreover, the neoclassical assumption that factors are trapped at the national level has no theoretical basis and the assumption of factor price equalisation cannot justify international immobility. Moreover, there is no evidence that factor prices are equal worldwide. Comparative advantages cannot therefore determine the structure of international trade.
If they are internationally mobile and the most productive use of factors is in another country, then free trade will lead them to migrate to that country. This will benefit the nation to which they emigrate, but not necessarily the others.
For example, goods from a country with lax pollution standards will be too cheap. As a result, its trading partners will import too much. And the exporting country will export too much, concentrating its economy too much in industries that are not as profitable as they seem, ignoring the damage caused by pollution.
On the positive externalities, if an industry generates technological spinoffs for the rest of the economy, then free trade can let that industry be destroyed by foreign competition because the economy ignores its hidden value. Some industries generate new technologies, allow improvements in other industries and stimulate technological advances throughout the economy; losing these industries means losing all industries that would have resulted in the future.
For example, when workers cannot move from one industry to another—usually because they do not have the right skills or do not live in the right place—changes in the economy's comparative advantage will not shift them to a more appropriate industry, but rather to unemployment or precarious and unproductive jobs.
According to theory, the only advantage of international trade is that goods become cheaper and available in larger quantities. Improving the static efficiency of existing resources would therefore be the only advantage of international trade. And the neoclassical formulation assumes that the factors of production are given only exogenously. Exogenous changes can come from population growth, industrial policies, the rate of capital accumulation (propensity for security) and technological inventions, among others. Dynamic developments endogenous to trade such as economic growth are not integrated into Ricardo's theory. And this is not affected by what is called "dynamic comparative advantage". In these models, comparative advantages develop and change over time, but this change is not the result of trade itself, but of a change in exogenous factors.
However, the world, and in particular the industrialized countries, are characterized by dynamic gains endogenous to trade, such as technological growth that has led to an increase in the standard of living and wealth of the industrialized world. In addition, dynamic gains are more important than static gains.
So if trade were not balanced in itself and if there were no adjustment mechanism, there would be no reason to achieve a comparative advantage. However, trade imbalances are the norm and balanced trade is in practice only an exception. In addition, financial crises such as the Asian crisis of the 1990s show that balance of payments imbalances are rarely benign and do not self-regulate. There is no adjustment mechanism in practice. Comparative advantages do not turn into price differences and therefore cannot explain international trade flows.
Thus, theory can very easily recommend a trade policy that gives us the highest possible standard of living in the short term but none in the long term. This is what happens when a nation runs a trade deficit, which necessarily means that it goes into debt with foreigners or sells its existing assets to them. Thus, the nation applies a frenzy of consumption in the short term followed by a long-term decline.
In practice, however, the velocity of circulation is not constant and the quantity of money is not neutral for the real economy. A capitalist world is not characterized by a barter economy but by a market economy. The main difference in the context of international trade is that sales and purchases no longer necessarily have to coincide. The seller is not necessarily obliged to buy immediately. Thus, money is not only a means of exchange. It is above all a means of payment and is also used to store value, settle debts and transfer wealth. Thus, unlike the barter hypothesis of the comparative advantage theory, money is not a commodity like any other. Rather, it is of practical importance to specifically own money rather than any commodity. And money as a store of value in a world of uncertainty has a significant influence on the motives and decisions of wealth holders and producers.
From a theoretical point of view, comparative advantage theory must assume that labour or capital is used to its full potential and that resources limit production. There are two reasons for this: the realization of gains through international trade and the adjustment mechanism. In addition, this assumption is necessary for the concept of opportunity costs. If unemployment (or underutilized resources) exists, there are no opportunity costs, because the production of one good can be increased without reducing the production of another good. Since comparative advantages are determined by opportunity costs in the neoclassical formulation, these cannot be calculated and this formulation would lose its logical basis.
If a country's resources were not fully utilized, production and consumption could be increased at the national level without participating in international trade. The whole raison d'être of international trade would disappear, as would the possible gains. In this case, a State could even earn more by refraining from participating in international trade and stimulating domestic production, as this would allow it to employ more labour and capital and increase national income. Moreover, any adjustment mechanism underlying the theory no longer works if unemployment exists.
In practice, however, the world is characterised by unemployment. Unemployment and underemployment of capital and labour are not a short-term phenomenon, but it is common and widespread. Unemployment and untapped resources are more the rule than the exception.
Introduction of Harmonized System code in 1990s has largely replaced the Standard International Trade Classification (SITC), though SITC remains in use for statistical purposes. In drawing up the national tariff, the revenue departments often specifies the rate of customs duty with reference to the HS code of the product. In some countries and customs unions, 6-digit HS codes are locally extended to 8 digits or 10 digits for further tariff discrimination: for example the European Union uses its 8-digit CN (Combined Nomenclature) and 10-digit .
Companies use ERP software to calculate duties automatically to, on one hand, avoid error-prone manual work on duty regulations and formulas and on the other hand, manage and analyze the historically paid duties. Moreover, ERP software offers an option for customs warehouse, introduced to save duty and VAT payments. In addition, the duty deferment and suspension is also taken into consideration.
Imposing an import tariff has the following effects, shown in the first diagram in a hypothetical domestic market for televisions:
The overall change in welfare = Change in Consumer Surplus + Change in Producer Surplus + Change in Government Revenue = (-A-B-C-D) + A + C = -B-D. The final state after imposition of the tariff is indicated in the second diagram, with overall welfare reduced by the areas labeled "societal losses", which correspond to areas B and D in the first diagram. The losses to domestic consumers are greater than the combined benefits to domestic producers and government.
Besides that above analysis is by a partial equilibrium analysis, however by a general equilibrium analysis, it showed that the income transfer caused among to the welfare concerned to the production of the good imposed tariff from the another welfare of production.
That tariffs overall reduce welfare is not a controversial topic among economists. For example, the University of Chicago surveyed about 40 leading economists in March 2018 asking whether "Imposing new U.S. tariffs on steel and aluminum will improve Americans'welfare." About two-thirds strongly disagreed with the statement, while one third disagreed. None agreed or strongly agreed. Several commented that such tariffs would help a few Americans at the expense of many. University of Chicago IGM Panel-Steel And Aluminum Tariffs-March 12, 2018 This is consistent with the explanation provided above, which is that losses to domestic consumers outweigh gains to domestic producers and government, by the amount of deadweight losses.
A tariff is called an optimal tariff if it's set to maximize the welfare of the country imposing the tariff. It is a tariff derived by the tangent between the trade indifference curve of that country and the offer curve of another country. In this case, the welfare of the other country grows worse simultaneously, thus the policy is a kind of beggar thy neighbor policy. If the offer curve of the other country is a line through the origin point, the original country is in the condition of a small country, so any tariff worsens the welfare of the original country.Almost all real life examples may be in this case.
It is possible to levy a tariff as a political public choice, and to consider a theoretical optimum tariff rate. When countries impose tariffs on each other, they will reach a position on the contract curve, which indicates a combination of trade quantities that satisfy each other's maximum welfare, with the countries trade own goods between each other.
The political impact of tariffs is judged depending on the political perspective; for example the 2002 United States steel tariff imposed a 30% tariff on a variety of imported steel products for a period of three years and American steel producers supported the tariff.
Tariffs can emerge as a political issue prior to an election. In the leadup to the 2007 Australian Federal election, the Australian Labor Party announced it would undertake a review of Australian car tariffs if elected. The Liberal Party made a similar commitment, while independent candidate Nick Xenophon announced his intention to introduce tariff-based legislation as "a matter of urgency".
Unpopular tariffs are known to have ignited social unrest, for example the 1905 meat riots in Chile that developed in protest against tariffs applied to the Argentine beef. Primeros movimientos sociales chileno (1890–1920). Memoria Chilena.Benjamin S. 1997. Meat and Strength: The Moral Economy of a Chilean Food Riot. Cultural Anthropology, 12, pp. 234–268.
This is related to the infant industry argument.
In contrast, in economic theory tariffs are viewed as a primary element in international trade with the function of the tariff being to influence the flow of trade by lowering or raising the price of targeted goods to create what amounts to an artificial competitive advantage. When tariffs are viewed and used in this fashion, they are addressing the country's and the competitors' respective economic healths in terms of maximizing or minimizing revenue flow rather than in terms of the ability to generate and maintain a competitive advantage which is the source of the revenue. As a result, the impact of the tariffs on the economic health of the country are at best minimal but often are counter-productive.
A program within the US intelligence community, Project Socrates, that was tasked with addressing America's declining economic competitiveness, determined that countries like China and India were using tariffs as an integral element of their respective technology strategies to rapidly build their countries into economic superpowers. However, the US intelligence community tends to have limited inputs into developing US trade policy. It was also determined that the US, in its early years, had also used tariffs as an integral part of what amounted to technology strategies to transform the country into a superpower.