This article talks about UK bicycle parts manufactures and importers that want to have a say on what tariffs will be placed once Britain leaves the European Union. The tariff consultation is targeted on Chinese and European manufactures. Tariffs are defined as taxes or duty’s to be paid on a particular class of imports or exports. Trade is the act of buying, selling, or exchanging goods or services.
The effect of a tariff can be shown from the following diagram. In this diagram the tariff for the U.K. goes up from PW (price import) top w + t. The import increases as suply increases domestically from Q1 to Q3, while Q demanded decreases domestically from Q2 to Q4. As a result, import decreased from Q1 to Q2, to Q4 to Q3. This shows that the import has fallen. However, domestic production has increased as the price increase of domestic supply increase from pw to PW + PW + tariff, therefore, price also increases. The tarrif also generates government revenue, which is PW + t – PW x number of imports. Number of imports is the shaded block in the diagram
The imposition of tarrifs have a number of benefits, with the main advantage discussed in the article being the reduction of dumping. Dumping is the export by a country or company of a product at a price that is lower in the foreign market than the price in the domestic market. This is seen as unfair competition. Another advantage is that it will protect infant industries. These industries are usually industries domestically that are in their initial stages of development. By protecting them with tarrids, they will have more time to gain economies of scale, in order to compete with foreign firms. Therefore, protecting these domestic firms from various competition overseas, while lead to a decrease in domestic unemployment
Tariffs reduce the current account deficit (when the valeu of imports is greater than the valeu of exports) by reducing the valeu of imports. As imports decrease, there is an increase in aggregate demand. This is because AD equals to consumption + investment + government spending + exports – imports. So if imports get smaller, AD will increase and will result in an AD curve shift to the right. It also reduces the government budget deficit, which is when government revenue is less then government spending, because tariff’s provide a source of income as it is a tax.
Tarrifs also have disadvantages, with the first one being retaliation. When a country imposes a tarrif on other countries it is most likely other countries will retaliate by imposing a tariff on a domestic country. The effect of retaliation is that it reduces the exports of the country. If there is retaliation, the benefit of the increase in AD and the decrease in the current account deficit will not be reality. This is because the exports are also decreasing. The second disadvantage is that there is a higher price level, which has the potential effect of harming retailers who sell imported goods, who will suffer from the loss of margin. Then there is also efficiency so when there is a tarrif domestic production increases, and foreign production decreases