How Governments Impose Tariffs/Quotas

Posted on - 26th June 2009 Tweet

With aid of a diagram explain why governments impose tariffs on imports.

The reasons for tariffs are to make imported goods more expensive. The government may increase tariffs on selected imports to make them more expensive to make them unattractive to buyers in their country. This maybe to preserve a certain industry or help to protect that industry whilst it tries and grows.

Example: Japan steal businesses are seeing a decrease in sales as USA steal is cheaper to import. To help protect the industry the Japan government may increase tariffs on USA steal imported into the country to make it more expensive and help discourage people buying and importing steal from the USA. The idea is to make imported steal more expensive than Japan steal so that people will buy more of Japan steal.

1. Evaluate policies other than tariffs that could be introduced to reduce the value of imports into a country.
Other than increasing the tariffs on imported goods the government could use other policies to try and decrease the amount of goods + services imported.

Increase Interest Rates:

If the government wants to decrease the amount imported then they may look at using the monetary policy in their favour. If they increase interest rates then people will have less disposable income as existing borrowings increase, this would mean they have less to spend on imported goods + services. It would also mean they are less likely to take out new borrowings to buy imported goods.

Increase in Income Tax:

Again this works in roughly the same way. If the government were to increase income tax then they would have less disposable income as they would have to pay out more tax on their earnings each month. This would mean they have less money each month to buy imported goods + services.

Increasing Corporation Tax:

This would affect businesses. Some businesses import lots of goods and services, many of them maybe components which they buy in to manufacture goods. If the government were to increase the amount of tax businesses have to pay on their profits then they would have less capital to spend on imported goods. This again could help to see a decrease in imports.

Vat (Value added tax):

This is the tax which the government places on goods and services. If the government were to increase this then goods would become more expensive to buy and hopefully would discourage people buying imported goods as now they’ll be more expensive.

Basically any tax increases would either make goods more expensive or take more money from consumers therefore either leaving more expensive goods by taxes imposed upon original price or by taking away more of their disposable income in which to leave people not being able to afford the goods + services, businesses again may start to decrease output as components being bought in will be more expensive and leading to an increasing cost to the business, they may decide to keep output the same but pass the increase in costs onto the consumer. The government would have to be very careful when altering policies to combat the amount of imports just encase it has a bigger negative impact on their economy than if they were flooded with cheap imports.