Introduction
A tariff is a tax levied by a country on the goods and services imported from another country (Felbermayr et al. 2015). Tariffs promote nationalism and protectionism, whereby countries strive to promote the goods and services produced within their borders. Raising the prices of imports makes the imported commodities less appealing to the domestic consumers. Tariffs can be imposed on both exports and imports. Tariffs are categorised into two based on the nature and value of the products. A specific tariff can be levied as a fixed fee depending on the nature of the commodity. An ad valorem tariff is levied depending on the product’s assessed value (Felbermayr et al. 2015). Compound tariff comprises of both specific and ad valorem elements.
Increasing tariffs and revenues shields the domestic industries and companies from unhealthy foreign competition (Felbermayr et al. 2015). When governments raise the prices of foreign-produced commodities, lower prices may make goods produced locally more attractive alternative, therefore, promoting the local economy, which improves the standard of living of citizens. Hence, local industries are protected by throttling the development of a rival company in another country and in addition to secure jobs for its citizens by maintaining domestic employment. Governments can also use tariffs as an extension of foreign policy (Felbermayr et al. 2015). Levying tariffs on the exports of trading partners exerts economic leverage. The overall advantages of imposing tariffs outweigh its negative effect, especially in developing countries which lack adequate tools to impose income or corporation taxes.
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When a small country imposes tariffs, the more limiting the tariff, the greater the loss in national welfare. The tariff will lead to the redistribution of income, whereby the recipients of the tariff and manufacturers gain incomes, while consumers lose. Since the country is small, the tariff will have no impact on the price in other places in the world. Thus, there will be no changes in welfare for consumers or producers in a small country. Though imports are decreased, the associated decrease in exports by other countries in the world is deemed to be very small to have a noteworthy effect (Felbermayr et al. 2015). Conversely, when a large importing country imposes a lower tariff, the national welfare of the country will be increased. However, when the large country imposes high tariffs, the welfare will negatively be affected. Therefore, an optimal tariff that will exist that will maximise national welfare (Felbermayr et al. 2015).
Discussion
The two selected articles include “ Tariffs and Carbon Emissions” by D. Y Kono and “Embodied Carbon Tariffs” by Böhringer et al. In his article, Kono states that the concerns associated with international trade and environment especially in terms of climate change. The author tries to justify if liberalization of trade leads to increased emission of carbon. Kono examines the link between emissions and tariffs in about 153 countries from the year 1988 to 2013 (Kono, 2017) . By employing instrumental variable regression in his study, the results from Kono's study revealed a reduction in emissions resulted in higher tariff on produced commodities. The results implied that carbon-intensive manufacturers countered restrictions on carbon by pushing against the liberalization of trade (Kono, 2017) . Analogous to that, carbon emissions did not influence tariffs on commodities that were less carbon-intensive, and all the tariffs did not affect the emission of CO2.
The study by Böhringer et al. (2016) focuses on examining the environmental and economic effects of tariffs on carbon personified in trade. The authors found that tariffs on carbon help in minimizing foreign emissions. However, the capacity of the tariffs to enhance global cost-efficiency of unilateral policy on climate is limited. If tariffs on carbon are imposed on the complete carbon content of traded products, the tariffs can increase instead of decreasing the global price of reducing emissions. The significant impact of carbon tariffs is to transfer the economic burden of climate policies of developed countries to developing countries. From the analysis of the two articles, it is evident that the attempts to deal with climate change may hinder liberalization of trade. However, the latter should not obstruct mitigations on climate change.
In conclusion, the imposing tariffs on imports may have varying impacts on a country depending on the size. Small countries experience loss in national welfare with levying of tariffs. Large countries only experience a maximum change in national welfare by levying optimal tariffs. Carbon regulation and liberalization of trade are important objectives. If restrictions on carbon hinder trade liberalization, then better ways need to be developed to protect the climate without forgoing international trade. In an ideal situation, linking environmental policies to international trade could result in more collaboration in both areas.
References
Böhringer, C., Carbone, J. C., & Rutherford, T. F. (2016). The strategic value of carbon tariffs. American Economic Journal: Economic Policy , 8 (1), 28-51.
Felbermayr, G., Jung, B., & Larch, M. (2015). The welfare consequences of import tariffs: A quantitative perspective. Journal of International Economics , 97 (2), 295-309.
Kono, D. Y. (2017). Tariffs and carbon emissions. International Interactions , 43 (6), 895-919.
