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TARIFF IN UNITED STATES HISTORY
A tariff (from the Arabic ‫ت عري فة‬, transliterated taʿrīfah, ―notification‖; derived from the
verb ‗arrafa—―to announce, inform‖—is a tax levied on imports or exports.
HISTORY
Tariffs are usually associated with protectionism, the
economic policy of restraining trade between nations.
For political reasons, tariffs are usually imposed on
imported goods, although they may also be imposed
on exported goods.
In the past, tariffs formed a much larger part of
government revenue than they do today. When
shipments of goods arrive at a border crossing or
port, customs officers inspect the contents and charge a tax according to the tariff
formula. Since the goods cannot continue on their way until the duty is paid, it is the
easiest duty to collect, and the cost of collection is small. Traders seeking to evade
tariffs are known as smugglers.
TYPES
There are various types of tariffs:
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An ad valorem tariff is a set percentage of the value of the good that is being
imported. Sometimes these are problematic, as when the international price of a
good falls, so does the tariff and domestic industries become more vulnerable to
competition. Conversely, when the price of a good rises on the international
market so does the tariff, but a country is often less interested in protection when
the price is high.
They also face the problem of inappropriate transfer pricing where a company
declares a value for goods being traded which differs from the market price,
aimed at reducing overall taxes due.
A specific tariff is a tariff of a specific amount of money that does not vary with
the price of the good. These tariffs are vulnerable to changes in the market or
inflation unless updated periodically.
A revenue tariff is a set of rates designed primarily to raise money for the
government. A tariff on coffee imports imposed by countries where coffee cannot
be grown, for example raises a steady flow of revenue.
A prohibitive tariff is one so high that nearly no one imports any of those items.
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A protective tariff is intended to artificially inflate prices of imports and protect
domestic industries from foreign competition—see also effective rate of
protection—especially from competitors whose host nations allow them to
operate under conditions that are illegal in the protected nation, or who subsidize
their exports.
An environmental tariff, similar to a ‗protective‘ tariff, is also known as a ‗green‘
tariff or ‗eco-tariff,‘and is placed on products being imported from, and also being
sent to countries with substandard environmental pollution controls.
Retaliatory tariff is one placed against a country who already charges tariffs
against the country charging the retaliatory tariff (e.g. If the United States were to
charge tariffs on Chinese goods, China would probably charge a tariff on
American goods, also). These are usually used in an attempt to get other tariffs
rescinded.
Tariffs, in the 20th century, are set by a Tariff Commission based on terms of reference
obtained from the government or local authority and suo motu studies of industry
structure.
Tax, tariff and trade rules in modern times are usually set together because of their
common impact on industrial policy, investment policy, and agricultural policy. A trade
bloc is a group of allied countries agreeing to minimize or eliminate tariffs and other
barriers against trade with each other, and possibly to impose protective tariffs on
imports from outside the bloc. A customs union has a common external tariff, and,
according to an agreed formula, the participating countries share the revenues from
tariffs on goods entering the customs union.
If a country‘s major industries lose to foreign competition, the loss of jobs and tax
revenue can severely impair parts of that country's economy and increase poverty. If a
nation‘s standard of living or industrial regulations are too great, it is impossible for
domestic industries to survive unprotected trade with inferior nations without
compromising them; this compromise consists of a global race to the bottom. Protective
tariffs have historically been used as a measure against this possibility. However,
protective tariffs have disadvantages as well. The most notable is that they prevent the
price of the good subject to the tariff from undercutting local competition, disadvantaging
consumers of that good or manufacturers who use that good to produce something
else. For example, a tariff on food can increase poverty, while a tariff on steel can make
automobile manufacture less competitive. They can also backfire if countries whose
trade is disadvantaged by the tariff impose tariffs of their own, resulting in a trade war
and, according to free trade theorists, disadvantaging both sides. (Murad)
ECONOMIC ANALYSIS
Libertarian economic theories hold that tariffs are a harmful interference with the
individual freedom and the laws of the free market. They believe that it is unfair toward
consumers and generally disadvantageous for a country to artificially maintain an
industry made inefficient by local demands, and that it is better to allow a collapse to
take place. Opposition to all tariffs is part of the free trade principle; the World Trade
Organization aims to reduce tariffs and to avoid countries discriminating between
differing countries when applying tariffs.
In the following graph, we see the effect that
an import tariff has on the domestic
economy. In a closed economy without
trade we would see equilibrium at the
intersection of the demand and supply
curves (point B), yielding prices of $70 and
an output of Y.* In this case the consumer
surplus would be equal to the area inside
points A, B and K, while producer surplus is
given as the area A, B and L. When
incorporating free international trade into the
model we introduce a new supply curve
denoted as SW. This curve assumes that
the international supply of the good or
service is perfectly elastic and that the world
can produce at a near infinite quantity at the
given price. Obviously, in real world conditions, this is somewhat unrealistic, but making
such assumptions is unlikely to have a material impact on the outcome of the model. In
this case the international price of the good is $50 ($20 less than the domestic
equilibrium price).
The model above is only completely accurate in the extreme case where none of the
consumers belong to the producers group and the cost of the product is a fraction of
their wages. If instead, we take the opposite extreme, and assume all consumers come
from the producers' group, and assume their only purchasing power comes from the
wages earned in production and the product costs their whole wage, then the graph
looks radically different. Without tariffs, only those producers/consumers able to
produce the product at the world price will have the money to purchase it at that price.
The small FGL triangle will be matched by an equally small mirror image triangle of
consumers still able to buy. With tariffs, a larger CDL triangle and its mirror will survive.
Note also, that with or without tariffs, there is no incentive to buy the imported goods
over the domestic, as the price of each is the same. Only by altering available
purchasing power through debt, selling off assets, or new wages from new forms of
domestic production, will the imported goods be purchased. Alternatively, of course, if
its price were only a fraction of wages.
In the real world, as more imports replace domestic goods, they consume a larger
fraction of available domestic wages, moving the graph towards this view of the model.
If new forms of production are not found in time, the nation will go bankrupt, and internal
political pressures will lead to debt default, extreme tariffs, or worse.
Establishing tariffs slows down this process, allowing more time for new forms of
production to be developed, but also buttresses industries, which may never regain
competitive prices.
POLITICAL ANALYSIS
The tariff has been used as a political tool to establish an independent nation; for
example, the United States Tariff Act of 1789, signed specifically on July 4, was called
the ―Second Declaration of Independence‖ by newspapers because it was intended to
be the economic means to achieve the political goal of a sovereign and independent
United States.[1]
In modern times, the political impact of tariffs has been seen in a positive and negative
sense. The 2002 United States steel tariff imposed a 30% tariff on a variety of imported
steel products for a period of three years. American steel producers supported the tariff
[2]
, but the move was criticised by the Cato Institute[3].
Tariffs can occasionally emerge as a political issue prior to an election. In the lead up to
the 2007 Australian Federal election, the Australian Labor Party announced it would
undertake a review of Australian car tariffs if elected [4]. The Liberal Party made a
similar commitment, while independent candidate Nick Xenophon announced his
intention to introduce tariff-based legislation as ―a matter of urgency.‖ [5]
SEE ALSO
 Effective Rate of Protection
 Embargo
 Environmental Tariff
 Excise Duty
 General Agreement on Tariffs and Trade (GATT)
 Import Quota
 List Of International Trade Topics
 List Of Tariffs
 Swiss Formula
 Telecommunications Tariff
 Trade Barrier
REFERENCES
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Thomas Jefferson - under George Washington by America's History
BW Online | March 8, 2002 | Behind the Steel-Tariff Curtain
Trade Briefing Paper no. 14, Steel Trap: How Subsidies and Protectionism
Weaken the U.S. Steel Industry | Cato‘s Center for Trade Policy Studies
http://www.theaustralian.news.com.au/story/0,25197,22729573-5013871,00.html
Candidate wants car tariff cuts halted - Breaking News - National - Breaking
News
FURTHER READING
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Salvatore, Dominick (2005): Introduction to International Economics (First ed.)
Hoboken, NJ: Wiley: ISBN 0471202266
Taussig, F. W. (1911), ―Tariff‖
Encyclopedia Britannica, 26 (11th ed.), pp. 422–427,
http://www.econlib.org/library/Taussig/tsgEnc1.html
Free Markets And Tariffs