Tariffs Essay

2010 words - 8 pages

TariffsProtectionism is the economic policy of protecting the industries and agriculture of a state against foreign competition through government intervention. It occurs when one country erects barriers to trade with other countries. These barriers can take many forms such as: tariffs, quotasor other technical rules. Governments often use more than one of these barriers to protect localindustries against unfair foreign competition. These barriers may also be in reaction todumping, the practice of selling goods abroad at less than their true cost--a practice indulged in by firms seeking to gain market share or by state-subsidized firms that can afford to absorb the loss.Tariff is a tax generally imposed by a government on imports and, in some instances, on exports. Originally, it was levied to raise revenue. After the growth of industry and the formation of national economies, tariffs were imposed chiefly as instruments of national economic policy. Tariffs is imposed to protect domestic industries against foreign competition and to achieve a favorable balance of trade. These practices also led to the levying of high and often discriminatory tariff by one government as an expression of hostility to another government.In recent years, the use of tariff in the world economy has declined and the use of other a variety of other restrictions has increased. Average tariff level have fallen in most of the countries, largely as a result of international negotiation conducted under General Agreement on Tariffs and Trade (GATT), and now known as World Trade Organization (WTO), a forum for international discussion of trade issues. Most of the countries also favor free trade and denying protectionism.In an International trade environment, there are many arguments for trade protection. The historical prevalence of protectionist policies reflects in part the strength of industrial vested and the fearful interest of foreign competition. It also reflects the strength of various arguments for protection. Such arguments can be categorize into three major groups: those intended to influence the composition of production, those intended to influence the level of employment, and those intended to influence the distribution of income. These groups of arguments have validity as well as limitations.One of the oldest arguments for protection is the infant-industry argument. According to this, import tariff barriers reduce foreign competition and helps in developing domestic industries rapidly. After their development is complete, they should be able to hold their own in competition with industries of other nations. In practice, protection cannot be removed easily, because the domestic industries never develop sufficient competitive strength. The limitation of the infant-industry argument is its inability to identify those industries that are capable of growing to genuine maturity.The national defense argument for protection seeks to avoid dependence on foreign sources for...

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