Economic Implications of Tariffs - Essay Example

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Tariffs have adverse effects on an economy. However, governments continue imposing them on investors who import commodities from foreign nations (Gregory 2000 p 16)…
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Economic Implications of Tariffs
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Economic Implications of Tariffs Tariffs are government taxes that are obligatorily levied for imported products. They are part of the government revenue sources. The amount of tariff charged on goods depends on its value at the entry of the destination country. Tariffs have adverse effects on an economy. However, governments continue imposing them on investors who import commodities from foreign nations (Gregory 2000 p 16).
Governments impose tariffs for several reasons which include; protection of the emerging as well as aging and incompetent local firms from unhealthy foreign competition, to enhance sustainability of local companies through prevention of dumping effect from foreign companies which may offer their products locally at an extremely low price that leads to losses by domestic firms (Mansfield and Yohe 23).
There have been a number of efforts to reduce tariff barriers between countries which have been supported through various organizations such as the WTO and Word Bank, which view tariffs as having a double impact; on the economy imposing the tariffs as well the economy on which the tariffs have been imposed (Geoffrey and Reny 2000 p 66). Tariff barriers slow economic growth. The local producers operate without competition leading to a rise in prices of their commodities, hence a decrease in the rate of consumption locally.
The negative impacts of tariffs on the economy are usually less visible compared to the projected advantages. Many governments therefore tend to focus more on protecting the local producers through imposing tariffs with little considerations of the hidden disadvantages that the practice poses to the economy, as well as the benefits that would be derived if the tariffs were to be abolished. Further research is important to establish how economic growth can be enhanced through abolishment of tariffs.
1. Geoffrey J. A. and Reny P. J. Advanced Microeconomic Theory. Addison Wesley Paperback, 2000
2. Gregory M. N. Principles of Microeconomics. South-Western Pub, 2000
3. Mansfield E. and Yohe W. G. Microeconomics: Theory and Applications, W.W Norton & Company, 2003 Read More
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