The economic effect of tariff

- Jan 22, 2018 -

The economic effect of tariff

Generally speaking, when a country's economic strength, the advantage in the international competition, often pursue the policy of free trade, tariff is mainly embodied in the tax function; on the contrary, when a country's economic development lags behind, the international competitiveness is not strong, often adopts the policy of trade protectionism, and tariff protection function even the main important position.

Tariffs will cause changes in international prices and domestic prices of imported goods, thereby affecting the adjustment of export and import countries in production, trade and consumption, resulting in redistribution of income. The impact of tariffs on the economy of the import and export countries is called the economic effect of tariffs.

Historically, tariffs imposed on imported goods, whether from SpecificTariffs or AdvaloremTariffs, were once important sources of government revenue. But in modern times, the main function of tariff is no longer to increase government revenue, but to block entry from foreign goods, protect domestic market and domestic related industries. Of course, the country has a large and small, similar import tariff, which can produce different economic effects on small countries and large countries.

Assuming that the importing country is a small trade country, that is, the import volume of a country's merchandise accounts for a small part of the world's imports. Therefore, the change of the import volume of the country can't affect the world market price, just like a fully competitive enterprise, just a receiver of the price. In this way, after the country expropriate the tariff, the increase of the domestic price of the imported goods is equal to the tariff rate, and the tariffs are all borne by the consumers of the importing country.

If the importing country is a big trading country, that is, the import volume of a certain commodity accounts for a large share of the world's imports. Then the import volume of the country will affect the world price. Therefore, although large countries impose tariffs, there are all kinds of tariff economic effects of these small countries, but because big powers can affect world prices, the cost of levying tariffs and interest contrast from local equilibrium analysis is different from that of small countries.

Related Industry Knowledge