Question

1. What impact does an import tariff have on the importing country? Provide graphs and formulas if possible.

2. Which incentives might a country have to impose an export tariff? Provide graphs and formulas if possible.

Answer 1

Ans 1. Below are some impacts of import tariff on importing country:  

1. Protect domestic industries – Import tariff helps a country to shield domestic firms from global competition. The main idea is to help them cultivate their business in domestic market.
2. Environmental harm – Imagine a country importing harmful chemical fertilizers which are harmful to environment and human health. Putting a tariff on such substances can restrict imports that reducing the harm to the environment.
3. Source of tax revenue – Imposing import tariff helps in increasing the tax collection as people will now have to pay extra amount as the import tariff.

Ans 2. Below are some incetives to have export tariffs:

1. To eliminate competition from other countries – Imagine a foreign country A depending heavily on a particular raw material from another country B. If country B imposes export tariff, it can force country A to shut down their business. Britain heavily used export taxes not only for revenue but also for and industrial competition.
2. Source of tax revenue - The Chile Government levied export duty on nitrate, which accounted for almost half of Chilean Government revenue for a very long time .
3. Ensure sufficient domestic supply – Export taxes have extensively used during inflation to reserve certain home-produced commodities for domestic markets.