International Trade is the branch of economics concerned with the exchange of goods and services with foreign countries. In the context of globalization, International trade has become an even more important topic now that so many countries have begun to move from state-run to market-driven economies. Tariff and non-tariff barriers play a large part in this process.
Tariffs are among the oldest forms of government economic intervention. They are most commonly used as taxes on imports into a country or region. They are put into practice for two clear economic purposes. They provide revenue for the government and they improve economic returns to firms and suppliers to domestic industries that face competition from foreign imports. Tariffs are widely used to protect domestic producers' incomes from foreign competition. This protection comes at a cost to domestic consumers who pay higher prices for imported goods. There are two mains ways of implementing a tariff:
* An ad valorem tariff is a fixed percentage of the value of the good that is being imported.
Sometimes these are problematic as when the international price of a good falls, so does the tariff and domestic industries become more vulnerable to competition. Conversely when the price of a good rises on the international market so does the tariff, but a country is often less interested in protection when the price is higher. They also face the problem of transfer pricing where a company declares a value for goods being traded which differs from the market price, aimed at reducing overall taxes due.
* A specific tariff is a tariff of a specific amount of money that does not vary with the price of the good. These tariffs may be harder to decide the amount at which to set them, and they may need to...