Question

ade and Tariffs

There is often talk in the news recently about increasing tariffs on some imports. Watch the video (Incidence of a Tariff) to prepare for this week’s discussion.

Reply to these questions in your post:

• When the United States puts tariffs on imports, who do you think ultimately pays these tariffs? Is it the foreign companies selling here, American consumers, or both? Explain your answer.
• Is it good or bad for American consumers when the United States puts tariffs on imports?

Discuss globalization with your peers:

Answer 1

Tariffs are seen as an import tax which country make in order to reduce the imports that it makes. United States, as a country has felt that it has been lenient towards imports from countries such as Mexico, Canada and China towards various goods such as iron and steel among others.

This has led to the administration in adding a tariff to the imports which is largely seen to increase the costs for foreign companies operating in the country as well as for local consumers.

For example, the United States imports as much as 30% of its domestic steel from other countries as it is unable to match up with demand from the local production.

The end result, of such tariffs is that the cost of production for all linked industries as well as the core industry changes. For example, with a tariff on iron and steel all linked industries which use the product as a raw material, such as infrastructure development, automobiles, railways, road etc all are linked and thus face increasing cost pressures.

The end result of a tariff is felt by both the consumers as well as the producers connected to such industries. Ultimately, the cost is passed over to the consumers in terms of increased prices which in turn may have an impact on the inflation rate in the country.

The producer on their part may lose demand because, some people may simply avoid the purchase decision or switch over to other industries which offer better profit margins without compromising on demand or prices. This usually results in unemployment as producers begin to fire people to control costs of operations and at the same time, consumers find things become expensive.

A rise in tariffs is usually bad for the consumers, as they risk losing their jobs if they work in the sectors impacted by such tariffs on one hand, and on the other they risk paying a premium over the natural price of the commodity which is bad for market demand as an overall.

Please feel free to ask your doubts in the comments section if any.