The Channel Group is campaigning for an end to international Trade Tariffs and Protectionism
Some may say that Tariffs no longer exist and that the introduction of TPP and such policies will break down these barriers for good. We would argue that whilst we wholeheartedly favour TPP and its sister agreement TTIP it will not bring an end the use of archaic measures penalising economies and businesses alike. We will show throughout this campaign that Tariffs and Protectionism are damaging, restricting and impact upon value supply chains the hardest.
The first in this campaign is our paper titled “Breaking Down the Barriers – Why it’s time to remove global tariff’s forever” which introduces the arguments and our reasons for challenging Tariffs and Protectionism. We aim to challenge international bodies and countries on these issues and assist businesses facing these kinds of measures.
- International trade has an enormously positive net impact on the world, which is enjoyed both by developed and developing nations.
- Diverse groups of countries with different economies all enjoy positive results when they enter into free trade agreements.
- Arguments for the imposition of tariffs, even in special circumstances, are flawed. Whilst emerging economies might see short-term security arising from protection, there is no long-term benefit to be drawn. There are better ways of ensuring the success of fledgeling sectors.
- Tariffs and other protectionist instruments handicap technological progress, harm poor countries disproportionately and keep prices artificially high for consumers.
- Although tariffs, subsidies and quotas are being phased out across the world, and the number of trade inhibiting measures has fallen rapidly in the last 50 years, those that are left continue to impede the pace of progress.
Read the full report:
What are Tariffs?
Put simply, a tariff is a tax used by governments to control the flow of foreign goods entering the country. In theory, the tax benefits the country in two ways, by providing a new revenue stream for the government and by depressing the impact of competition from international sources on domestic industries.
The tax increases the cost of the imported products and commodities, therefore making them less desirable compared with home-grown versions. It is one of a series of actions countries can undertake to limit the appeal of foreign goods or reduce access to them.
How does a Tariff work?
Country A produces motor vehicles which are sold at a unit price of £15,000 each. A country with either a lower cost base or more efficient working practices can manufacture similar cars much cheaper and can offer them for sale in country A for £12,000.
Demand for the foreign-made cars increases because they offer the same basic standards for less money. Country A responds by imposing an ‘imported car tariff’ of £4,000 per vehicle. The imported vehicles are now more expensive than the domestically-built ones.
Consumers go back to buying cars built in their own country because the imported cars are now £1,000 more expensive despite being roughly the same specification. Demand drops and the country’s car-making industry is protected.
Why do Tariffs inhibit free trade?
Tariffs are created to protect economies from international competition. But rather than focusing on encouraging innovation or smarter working practices within the country, they focus on penalising competitors’ products, making them more expensive than they would be in an open market.
They are often used to protect developing economies, particularly those reliant on a specific set of goods. They are also used to protect employment levels and help nurture local markets that are on the rise.
What effects do Tariff’s have?
Tariffs secure a measure of income for countries as few are designed to completely eliminate the sale of foreign goods, only to limit their attractiveness. National companies benefit from reduced competition, although consumers are penalised because they are denied the opportunity to buy at a lower price.
It is particularly harmful to consumer spending power when tariffs are applied to raw materials, such as oil and steel, that go into the production of a range of products and services. The higher input price means things cost more at the factory gate, which in turn contribute to higher retail prices across the board.
In general, therefore, tariffs benefit domestic producers over domestic consumers, reducing consumption by people and businesses. The knock-on effect is usually lower discretionary spending by consumers because more of their cash goes into artificially expensive goods.
What are the top reasons for creating Tariffs?
- Protecting fledgeling industries
- Shoring up domestic employment
- ‘Protecting’ consumers from inferior copies of a product
- Retaliation against a regional or global rival in a trade war
- Guarding sensitive industries such as defence; seen as vital to national security