There different ways that governments use to create revenues that can help in the financing of the various sectors of the economy. One of the most common means through which governments raise funds is through the taxing of imported goods and services. The type of tax that is imposed on imported products or services is known as an import tariff (Kenton, 2017). Apart from revenue collection, there are also other reasons that prompt governments around the world to impose import tariffs. An analysis of the different reasons that lead to an increase in tariffs and the situations that lead to the imposing of the tariffs is crucial in fully understanding how import tariffs work.
Various reasons lead to an increase in import tariffs. Import tariffs can be increased to raise revenues that could be instrumental in a country's development agenda such as the improvement of a country’s road network, and the growth of its education sector (Kenton, 2017). Another major reason that explains why countries impose import tariffs is to protect local industries from foreign competition (Kenton, 2017). Import tariffs make foreign goods more expensive compared to locally manufactured goods, giving them a competitive advantage. Cheap products and services mean that consumers will stop buying foreign goods and services in favor of locally manufactured goods. This, in the long run, leads to the growth of local industries.
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A situation that clearly explains the cause of increases in import tariffs is President Trump’s America first trade policy. Through the policy, Trump’s administration raised import tariffs on foreign goods that seek access to the lucrative American market (Singh, 2018). Before the policy, the United States had trade agreements with some of her closest allies such as the United Kingdom where the countries would trade together freely without any restrictions. However, Trump’s administration has initiated efforts that would see goods and services manufactured outside the United States attract more import tariffs than before, making it expensive to source for goods from outside the country. Even though the policy was meant to strengthen American industries, it has negatively affected them. Most of the American companies rely on raw materials sourced from other countries; thus it has become more expensive to acquire the raw materials (Singh, 2018). Other countries have also come up with policies that are not friendly the United States making local companies in the United States lose some of their key markets around the world. It is evident that the America first policy has not achieved what it was intended evidenced by the losses and cutbacks that most American companies have made in recent years.
There are different reasons that prompt governments to increase import tariffs. Among the major factors include the need to increase the revenue acquired from the tariffs and the protection of local industries. A perfect example that demonstrates the reason that led to an increase in import tariffs is President Trump’s America first policy. Through the policy, import tariff was increased on foreign goods and services with the aim of protecting local industries. Despite the good intentions of the policy, it has ended up affecting local industries more instead of benefiting them. A closer look into how American companies are performing, especially those in the manufacturing sector reveal an ailing industry heavily affected by the America first policy.
References
Kenton, W. (2017, December 18). Tariff . Investopedia . Retrieved from https://www.investopedia.com/terms/t/tariff.asp
Singh, R. K. (2018, June 25). Trump tariffs force companies to rework supply chains . Reuters. Retrieved from https://www.reuters.com/article/us-usa-trade-supplychains/trump-tariffs-force-companies-to-rework-supply-chains-idUSKBN1JL2LR
