Question

International Trade

The Director of Purchasing for parts distribution company wants to purchase steel coach screws from Germany; however, he is not sure what the best option is. The director comes to you and asks your opinion. You know that Germany, Canada, and Korea are the best sources for obtaining this product. While your research shows coach screws from Germany are of the highest quality, the United States imposes a tariff of 12.5%, which makes this option noncompetitive.

Which US trade laws should you consider when selecting a country?

Is there any way by which you can seek a reduction on the tariff? If so, how? If not, why?

Select an alternative country (Canada or Korea) for purchasing the coach screws and explain your reasons for selecting the country.

Answer 1

Solution

Tariffs are imposed by different countries as a protectioinist measure by the countries in order to safeguard the interests of their nation.We know that every country has a comparitive advantage in manufacturing / providing certain goods and services.This is the important reason why international trade happens.But when there is excessive imports of particular goods/services,in order to safeguard the interests (prevent job losses in that industries due to imports),the government takes measures like tariffs,quotas to create a level playing field for it's local industries.

We need to consider U.S custom laws to select the countries according to the tariffs that are imposed on them.The tariff rates will change from time to time.

No,there is no way in which we can seek a reduction on the tariff.Generally the method adopted to reduce the tariffs is requesting the exporter country manufacturer ( Either Canada(or)Korea ) to price the goods in such a way that we can gain advantage in terms of the tariff slabs of our country.

For Example :If we have decided to import shoes from Canada and the tariffs are follows:

Price Slabs	Tariff per pair (USD)
$0 - $12	$1
above $12	$4

In this if the original price of the good is $13 (say), the importers request to reduce the pricing by $1 in order to gain on the tariff rates.They would remaining amount if required separately.But this method is not ethical (or) legal.

Since Canada and Korea (i.e., South Korea) are allies of the U.S generally the tariffs are mostly do not exist (or) if existing they would be very low when compared to different countries.

Among the two countries,I would prefer Canada if the quality of screws is same of Canada and Korea as I can save on the transportation costs if I import from Canada.

If the quality provided by Korea is much superior I would go for it.

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