Hi, welcome to this blog on tariffs or restrictions to trade and Commerce: meaning, and instruments of trade restriction
Table Of Contents
- Definition of tariffs
- Reasons for imposition of tariffs or restriction of trade.
- Tools or instruments of trade restriction
Tariffs or Restrictions to Trade
Definition: Tariffs are taxes or duties imposed on imports and exports by the government of a country. The idea behind tariffs is to restrict the volume of trade or improve the international terms of trade.
Reasons for Imposition of Tariff or Restriction of Trade
The reasons why countries impose tariffs or restrictions on international trade include the following:
- To protect infant Industries: Tariffs are imposed to protect infant Industries from undue competition with foreign firms.
- Generation of revenue: Tariffs are also imposed to generate revenue for the country. Many countries derive their revenue from import and export duties.
- To prevent dumping: Tariffs are imposed to prevent dumping of goods from foreign countries. This is to prevent foreign goods from being sold at prices lower than the home price.
- To improve balance of payment deficit: By imposing tariffs on imported goods, the unfavorable balance of payment can be corrected because importation will be discouraged.
- Retaliatory measures: This can be used in retaliation against countries which impose taxes on their imports.
- To prevent importation of dangerous goods: Dangerous or harmful goods from other countries are prevented from being imported through restriction.
- Political motive: Tariffs can be introduced as discriminatory measure against a friendly countries.
- To promote self sufficiency: Tariffs are also imposed on imported goods to enable a country to be self sufficient in production of numerous goods.
- Employment generation: Countries impose tariffs to encourage the establishment of local Industries or enhance the expansion and growth of existing ones so as to provide job opportunities.
- To check consumption pattern: If all sorts of goods are allowed to come into the country, the citizens will develop uncontrolled appetite for foreign goods.
- To protect strategic Industries: Tariff maybe used in most cases to protect certain strategic Industries.
Tools or Instruments of Trade Restriction
Tools or instruments normally used for international trade restriction include the following:
- Import duties or tariffs: This is a tax imposed on imported goods to reduce the amount of trade.
- Foreign exchange control: Trade can be controlled by reducing the foreign exchange available for trade transactions.
- Devaluation: By lowering the value of a country’s currency vis-a-vis others, importation becomes costly while export becomes cheaper.
- Embargo: This is the Prohibition of outright ban placed on some imported goods.
- Import Monopoly: This refers to a situation in which the government of a country takes over the importation of certain goods which are only essential to the country.
- Import quota: Import quota restricts imports by imposing a limit on the quantity of goods that can be imported in a particular country.
- Preferential duties: In order to either encourage or discourage the importation of certain goods from certain countries, discriminate duties are charged on these goods.
- Excise duties reduction: This method helps to reduce the prices of locally made goods so as to enable people to patronize them instead of foreign made goods.
- Import license: Import license is a permit that allows an importer to bring a certain quantity of foreign goods into a country and allow him to purchase the foreign currency required to pay for them.
Revision questions
- What is tariff or restrictions to trade?
- Explain six reasons for imposition of tariff
- Explain five measures taken by country to restrict (a) restrict imports (b) promote export.