Tariffs, Essay Example

Tariffs & Import Quotes

A tariff is a duty or tax that is imposed upon goods and services.  They are normally used with the objective of restricting certain goods or services into a country. This makes the goods more expensive to end consumers and is a means that Governments use to shape trade policy and protects domestic goods from foreign competition.  An Import Quota is a means that restricts the quantity of imports by license restrictions. This often applies to specific countries.

Effects of a Tariff

The imposition of a foreign tariff will raise the cost of domestic producers and as such reduce the sales price in foreign markets. An example being the American tariffs that have been imposed upon the Canadian lumber industry and cost the domestic producers in the order of 1.5 billion Cdn$.  There is often a ‘knock on effect’ which causes the loss of jobs in peripheral industries. These sort of tariff restrictions contribute to the economic decline of a nation.  Import quotas have a tendency to increase the process of commodities. The rise in the price of a tariff is directly related to the amount of duty imposed.  There is ceiling on price increases caused by quotas  owing to the limits imposed upon the volume of exports.  Fig 1 illustrates the position.

Patrick Buchanan Views

It does not necessarily follow that by purchasing domestic goods e.g. made in America, as asserted by Buchanan, means you get a better deal.  In nearly all instances the costs of tariffs causes a net loss to the economies of both countries.  For example Canadian Lumber with the tariff or sales tax added may still be competitive and cheaper than US domestic lumber products.  Equally the Canadians may be able to supply in larger volumes that further reduces the unit price cost.