22 October 2024
1. Introduction Notes
When a country imposes or levies tariffs on imported goods, local importers and foreign suppliers of such goods initially pay the tariffs and, ordinarily, recoup the costs associated with the tariffs by raising the prices of the goods involved.
Ultimately, therefore, consumers in tariff-imposing countries bear the costs associated with tariffs. In other words, governments in countries which are the sources of imported goods do not pay the tariffs as Mr. Donald J. Trump has adamantly, openly and frequently asserted over the last several years, and has nicknamed himself as “Tariff Man.”
His views on “tariffs” are widely chronicled in U.S. news outlets, examples of which include the following:
“President Donald Trump told an Ohio audience … that China is footing the bill for the massive tariffs he’s slapped on foreign goods coming into the United States.”—Timm (2019).
“Trump has called for … 10 percent to 20 percent tariffs on all U.S. imports, and a higher rate of 60 percent or more on those from China.”—MSN News (2024).
“Donald Trump has identified what he sees as an all-purpose fix for what ails America: Slap huge new tariffs on foreign goods entering the United States.”—Wiseman (2024).
“Donald Trump’s plan for the economy boils down to one word: tariffs. The former president believes raising tariffs on imports—60% on goods from China and up to 20% for everybody else—would allow the United States to ‘steal’ manufacturing jobs that have gone overseas.”—Mathis (2024).
“Trump: It’s the most beautiful word in the dictionary. You have a lot of words that are damn nice like love. But I think it’s more beautiful than love. The word tariff.”—Sheth (2024).
The reckless use of tariffs and non-tariff trade barriers is at odds with the original and general objective of the World Trade Organization (WTO)—that is, to create an open, liberal and competitive international trading system and thereby contribute to global economic growth and development, as well as enhance prosperity and welfare worldwide.
The WTO replaced the General Agreement on Tariffs and Trade (GATT) on January 1, 1995 upon GATT’s trade negotiations which fell under the “Uruguay Round” rubric—negotiations which were started in September 1986 and concluded in December 1993 in Punta del Este, Uruguay.
The following constitute the subject matter of this article: (a) definitions of “tariff” and “non-tariff” trade barriers; (b) examples of basic reasons why a country may impose tariffs and/or non-tariff trade barriers on goods entering or leaving the country; and (c) the costs associated with the imposition of tariffs and/or non-tariff trade barriers on imported goods.
2. Basic Definitions:
The term “trade barriers” refers to any kind of impediments to trade in raw materials and/or manufactures between and/or among sovereign nations.
There are basically the following kinds of “barriers” or “impediments” to trade:
2.1 A tariff or customs duty, which is essentially a tax or levy imposed by a country’s government on goods entering or leaving the country—that is, on imports or exports. It may take any of the following forms:
(a) An “ad valorem tariff,” which is based on the monetary value of a particular tangible product, and which is normally expressed as a percentage of the price of the product; for example, 10% of the value of a car imported or exported.
(b) A “specific tariff,” which takes the form of a specified charge per unit, quantity or weight of a tangible product imported or exported; for example, $500.00 per car imported or exported. Or
(c) A “compound tariff,” which is essentially a levy that consists of both an ad valorem tariff and a specific tariff; for example, 10% of the value of a car imported or exported + $500.00 for each car imported or exported.
2.2 Non-tariff trade barriers or NTBs, which include the following impediments to trade across national borders:
(a) “Voluntary export restraints,” by which an importing country induces other countries to reduce their exports of a particular product or group of products to it voluntarily or face serious trade restrictions if their exports threaten the viability and survival of the country’s locally based economic units.
(b) “Import quotas,” which place restrictions on quantities of stipulated products to be imported into a country from specified countries.
(c) “Export subsidies” provided by a national government to domestic suppliers of goods earmarked for foreign markets. (Ordinarily, such subsidies encounter what are referred to as “countervailing duties,” which are essentially import duties levied on goods entering a country whose production is bolstered by government subsidies, especially if it is conclusively determined that the suppliers of the products are deliberately and consistently engaged in persistent dumping, predatory dumping and/or predatory pricing.) And
(d) Technical and administrative requirements and regulations, including the following: excessively unreasonable safety and/or health regulations, labeling requirements, and government procurement policies which are designed to ultimately limit the importation of certain kinds of goods.
3. Reasons for Barriers:
There are numerous reasons why a country may impose tariffs and/or NTBs on goods entering or leaving the country, such as the following:
3.1 Source of revenue: Tariffs or customs duties are used as vital and reliable sources of revenue for the country’s national government, particularly in cases where the other sources of the country’s revenue—including personal and corporate income taxes—are not adequate to sustain the operations of the national government and its earmarked projects and programs.
3.2 Infant industries: Tariffs and/or NTBs are used as means for protecting new and/or undeveloped business entities whose financial and competitive positions are weak, making them unable to compete effectively against strong foreign competition in their domestic market and, as such, requiring the protection of government authorities until they develop strong financial and competitive positions.
3.3 Senile industries: If some existing industries and/or companies in a country are declining and inefficient, they may require significant investments and time to revitalize their operations. Protection of such industries and/or companies from foreign competition can function as an incentive for them to improve their levels of performance.
3.4 Balance of trade: A government can use tariffs or customs duties as a means to the attainment of a favorable balance of trade (BoT) by depressing the country’s imports (M) and concurrently promoting its exports (X)—that is, (X – M) ≥ 0.
3.5 Scientific tariff: A country can impose a tariff on a specific category of imported goods that is designed to make the overall costs and/or prices of the goods involved approximately equal to the overall costs and/or prices of an identical category of goods produced in the domestic market.
3.6 Export subsidies: Tariffs can be used as countervailing measures in retaliation to goods imported from countries which provide subsidies to exporters of such products.
3.7 Strategic trade policy: The use of temporary subsidies, trade restrictions, tax incentives, and cooperative government-industry programs in a deliberate attempt to create a comparative advantage in high-technology companies and/or industries—such as industries and companies involved in telecommunications, computers, and semi-conductors—which have the potential to support future economic growth.
3.8 Protection of jobs: Imposition of trade barriers as a safeguard against the potential loss of manufacturing jobs that is likely to culminate from the displacement of locally manufactured goods by foreign products.
3.9 Socially clutched barriers: Tariffs and NTBs can be used to protect cherished cultural and traditional values and practices from incongruous foreign influences.
4. The Costs of Barriers:
There are a number of potential costs associated with the imposition of tariffs and/or NTBs on imported goods, such as those relating to the following:
4.1 Prices of Products: Prices of imported goods are likely to be high due to the added costs associated with tariffs and NTBs imposed on such goods. Also, the prices of locally manufactured goods are likely to be higher due to inadequate competitive pressures from dwindling imported substitutes occasioned by trade barriers.
4.2 Quality of Products: Imports elevate the level of competition for locally manufactured substitute products. Such competition induces local manufacturers to improve the quality of their products in order to continue to capture sizeable segments of the local markets for their product offerings. Trade barriers can, therefore, have a negative impact on the level of competition in a country’s local markets since they discourage imports and ultimately dampen local manufacturers’ quest to improve the quality of their products.
4.3 Assortment of Products: Trade barriers inevitably reduce the assortment of consumer and capital goods available in a country’s domestic market and, as such, adversely affect buyers’ preferences for a wide variety of product offerings to choose from.
4.4 Administrative Costs: The opportunity cost and the actual monetary expenses associated with the administration and implementation of NTBs can be extraordinarily high for a government. (Essentially, the term “opportunity cost” refers to the cost of a product, program, project, or pursuit estimated in terms of alternatives on which financial and/or material resources could have been applied. This reflects the true or actual cost of a product, program, project, or pursuit.)
Bibliography
Mathis, Joel, “Trump Leans on Tariffs to Boost [the] U.S. Economy: Tariffs Are a Favorite Economic Topic for the Former President,” The Week: https://theweek.com/, October 22, 2024.
MNS News, “As Trump Touts Tariffs, Yellen Says U.S. Has Rejected ‘Isolationism’,” … https://www.msn.com/.
Sheth, Sonam, “Trump Can’t Stop Talking About How Much He Loves Tariffs,” News Week: https://www.msn.com/, October 18, 2024.
Timm, Jane C., “Fact Check: Trump Says China Is Paying for His Tariffs. He’s Wrong. [Somebody] … In the U.S. Is Paying Higher Prices,” NBC News: https://www.nbcnews.com/, August 2, 2019.