WHY TARIFFS ARE USED?

▪ Tariffs are used for a number of reasons.

Some nations may focus solely on one
factor, while others may keep all of them
in mind.

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THERE ARE FOUR MAJOR REASONS WHY TARIFFS ARE USED

1.Protect domestic employment

2.Infant industries
3.National security
4.Retaliation
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1. PROTECT DOMESTIC
EMPLOYMENT
PROTECT DOMESTIC EMPLOYMENT

By imposing a cost on importers, their goods become more expensive.

As a result, it provides a competitive edge to domestic suppliers. For
instance, a Chinese manufacturer may want to import shoes into the US
market. Its price is $80, while the domestic competition sells a similar
product for $100. A tariff of 30 percent may be imposed, which would
increase the price to $104. In turn, Chinese shoes become less desirable.
In big markets, such as manufacturing, the loss of jobs is noticeable.
So governments look to garner public support by providing protection to
such industries. While this may not affect the voting intentions of the wider
population, it can play an important role in winning the worker’s votes .

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2. INFANT INDUSTRIES
INFANT INDUSTRIES

In new and upcoming industries, some countries look to protect

small firms from international competition. This generally happens in
developing nations but is also used occasionally among developed
nations.
The concept of infant industries stems from the idea that new
firms need to be protected in order for them to flourish. For example,
South Africa is not known for its manufacturing of cars. However, it can
import big brands such as Ford. Inevitably, that makes it incredibly
difficult for local manufacturers to compete. Not only di they have to
compete with the brand, but also the price and efficiencies.

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3. NATIONAL SECURITY
NATIONAL SECURITY

Industries such as steel, technology and aerospace are all seen

as key to national security. There is even a case to be made in
agriculture. For example, should a nation go to war, it may become
dependent on its internal ability to produce food. As a result, these
industries are seen as crucial components that must be protected.

Not only are tariffs generally imposed, but subsidies or even

nationalization of industries has occurred.
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4. RETALIATION
RETALIATION

As we have seen in the trade war between US and China, countries can impose
tariffs in retaliation. For instance, the US imposed tariffs on China because of the
existing high tariffs on its exports. The goal was to get China to reduce its own
tariffs. However, what ensued was a retaliation with ever-increasing tariffs.

Nations may also place tariffs in retaliation to aggressive practices

employed by foreign powers. For example, the US raised its steel tariffs to 522
percent in retaliation to China dumping steel into the market. The aim of such acts
by foreign nation is to destroy domestic industries to enable them to take market
share and face unchallenged competition. 11
END OF REPORT
THANK YOU