Question

Discuss reasons why a tariff on imports is typically regarded as a more desirable policy instrument when it is compared with an import quota. (10 Marks, maximum word limit: 250 words)

Answer 1

The tariff is a tax levied on imported goods at the border.countries use tariffs to provide easy market access or restrict them to protect domestic industry.it also serves the purpose of revenue collection and to achieve some strategic objectives by giving are denying tariff concessions to countries.

Tariff could harm export competition.availability of cheaper raw materials and intermediate product support making of competitively priced and finished goods for export markets. The challenge for entrepreneurs is to find them cheaper inputs.if these inputs are not available domestically at competitive rates they look to source them from outside.but as high tariffs act as barriers to sourcing cheaper inputs they undermine export competitiveness of a product.

recently US President Trump has imposed heavy tariffs on steel and Aluminium imported from all countries accept Canada and Mexico. Trump's decision has domestic and trade costs. At 25% duty on steel will increase the domestic Steel price by 5%.this could lead to an increase in the input cost for some industries for other leading to high cost of their products for consumers.Desh mein create inflationary pressure leading to high interest rate and dollar appreciation. The US duty on steel and Aluminium also mean that the global surplus would have to be dumped in some other countries at a lower prices. The Steel sector already plagued with excess capacity would face more turmoil.