2. TARIFF
ØTariff: A tax (duty) levied on a product when it
crosses national boundaries
=>Import tariff
=>Export tariff (not common)
Ø Tariffs may be imposed for protection or revenue
=>Protective tariff (protect domestic industry from
competition)
=> Revenue tariff
> Decreasing tariff revenue trend for industrial nations
> Percentage of government revenue derived from
tariffs
3. ØEXPORT TARIFF :- Are the taxes that
are levied on goods when they leave
the country.
ØIMPORT TARIFF :- Are the taxes on
the goods which are imported.
ØTRANSIT TARIFF :- Are the taxes
which are imposed on the goods as
they pass through one country bound
for another.
4. Non Tariff Barriers
Ø Quotas refers to numerical limits on the quantity of goods that may imported
or exported by the country.
Ø Subsidy is a government payment to a domestic producer. Subsidies take
several forms such as , cash grants , low-interests rates, tax breaks, and
government equity participation in local firms. By lowering the costs,
subsidies help domestic producers in two ways:- they help them compete
low-cost foreign imports and gain access to export markets.
Ø Embargo refers to a complete ban on trade (import or export) in one or more
products with a particular country. It may be placed on one or more goods
or completely ban trade in all goods. It is the most restrictive non-tariff
trade barrier.(it can also be termed as absolute quota)
5. ØCurrency control refers to
restrictions on the
convertibility of currency
into other currencies.
6. Types of Tariffs
•• Specific tariffSpecific tariff
–– Fixed amount of money per physical unit of theFixed amount of money per physical unit of the
imported productimported product
•• Ad valorem (of value) tariffAd valorem (of value) tariff
–– Fixed percentage of the value of the importedFixed percentage of the value of the imported
productproduct
•• Compound tariffCompound tariff
–– Combination of specific and ad valorem tariffsCombination of specific and ad valorem tariffs
8. PROTECTIONISM
Protectionism, policy of protecting
domestic industries against foreign
competition by means of tariffs,
subsidies, import quotas, or other
restrictions or handicaps placed on
the imports of foreign competitors
9. Effects of Tariff
ØProtective Effect :Protective Effect : A tariff has protective effect for theA tariff has protective effect for the
domestic industries. It tends to raise the domesticdomestic industries. It tends to raise the domestic
price of the imported commodity, reduce the domesticprice of the imported commodity, reduce the domestic
demand for that commodity and thereby stimulates itsdemand for that commodity and thereby stimulates its
domestic production.domestic production.
ØConsumption Effect :Consumption Effect : Imposition of tariff raises theImposition of tariff raises the
price, and as a result, the demand for the commodityprice, and as a result, the demand for the commodity
falls.falls.
ØRevenue Effect :Revenue Effect : The govt drives revenue from the tariffThe govt drives revenue from the tariff
which is measured by the quantity of the importswhich is measured by the quantity of the imports
multiply by the rate of the tariffmultiply by the rate of the tariff
10. Ø Terms of trade effect :Terms of trade effect : when a country imposes awhen a country imposes a
tariff duty, its willingness to receive imports istariff duty, its willingness to receive imports is
reduced. For a given quantity of exportsreduced. For a given quantity of exports
Ø Balance of payments effect :Balance of payments effect : tariff has favorabletariff has favorable
effect on the balance of payments position of theeffect on the balance of payments position of the
imposing country. It reduces imports and increasesimposing country. It reduces imports and increases
the export surplus of the country. Thus, throughthe export surplus of the country. Thus, through
tariffs, a deficit in the balance of payment can betariffs, a deficit in the balance of payment can be
corrected.corrected.
Ø Income effect :Income effect : as a result of tariff, the expenditureas a result of tariff, the expenditure
on imported goods is reduced. This will increaseon imported goods is reduced. This will increase
the export surplus of the country and thereby thethe export surplus of the country and thereby the
income from foreign trade.income from foreign trade.
Ø Competitive effect :Competitive effect : tariff protects the domestictariff protects the domestic