Ecoarth Essay Research Paper A tariff or

Ecoarth Essay, Research Paper

A tariff or duty tax is a tax x placedon imports, usually calculated as apercent of the price charged for the goods by the foreign supliers. Tariffscan therefore be used as a source of revenue for the governmnets, but aremainy used as a form of protection against foreign competition. By raisingprices of imported goods relative to those of the domesticlaly producedgoods, it is encouraging domestic consumers to by domestic prodcuts ratherthan foriegn products. The main effects of protection of industry are:Because the tarrifs are placed on cheaper foreign goods are consumers areforced to pay higher prices for products, which results in a lower standardof living in the community. Incomes are redisturbrited away from consumers to entrepreneurs in theprotected industries and to government protection will mean a higher levelof domestic production and a higher level of employment. The main arguments for protectuion of industry are: “infant industry”,defense or national self-suffiency, protection of home industry,diversification, favorable balance of trade, and protection of employment. The “Infant industry” argument:This argument assumes that a domestic industry could gain a competitiveadvantage if it could only get started without the pressure of foreigncompetition. Once the industry becomes established the government would thanphase out there protection. This line of debate is only valid if the resources are more productive intheir new use then they would be if the industry had not been started. Fromthis, eventually the industry must be able to supply its products to themarket at a price lower then that of the imported product.The problem is to quickly identify those so called infant industry that aregoing to able to grow, with help of temporary protection, into productiveenterprises that will have a competitive adavantage.In practice this argument is destroyed, as those “infant industries” thatare protected usually fail to grow out of the infant stage, and are not ableto face foreign competitioon. Defence of national Self-Sufficiecney:This is where a government chooses to protect those industries it believeswill be crucial in time of warfare. The result in problem from this form ofprotection is that it stops the standard of living of the country risisngquiet as quickly as it would other wise have done, and therefore is notoften supported by citizens. Protection of Home Industry:This argument is most prevelant at the moment, and it involve government andentreprenurs appealing to the public patriotism to buy “Australian made”products, no matter the price the public has to pay or the quality of theproduct purchase.As the consumer is usually having to pay a higher price for the domesticgoods, buying “Australian made’ decreases there standard of living.If the home industry needs protection form lower cost overseas industries,the question asked how efficient the home industries are. In many cases the answer is not very, and it must be considered if theresources must be consisdered if the resources could be used moreproductively. If they could, then there is no bases for this argument. Protection of Employment:The argument provided by those who follow this line of thought is thatimporting goods amounts to the exporting of jobs. Originally there is a loseof jobs of some of the workers in the less protected industry as there is no

longer a market for there skills. These workers may then need retraining togain employment in the work force. Australia sometime provides adjustmentassistance to the workers in firms that suffer from increased importsresulting form government actions that lower trade barriers. The reason behind this support is that the removal of trade barriers leadsto increased trade, and since the whole nation realises gains from theincreased trade, some of the gains can be used to compensate those workerswho suffer loss during the transitional period. As long as the economy is operating a capacity, unemployment resulting fromincreased foreign competition should only be transitional. Any long termunemployment problems should be blamed on fiscal and monetary polices andother domestic polices for dealing with unemployement. Diversification:Is the situation resulting from a country having a competiitive advantage inonly one or two products. The international trade of this country may besubject to wide fluctuation in the prices it receives because of the changesin world supply and demand. They are consisdered ” all there eggs in the onebasket” as they are extremely vulnerable to changing economic conditions andfuture trends and technological discoveries. Favourable balance of trade:There are two main lines of analysis against this argument:all countries cannot have a favourable balance of trade, becuase if somehave a favourable balance some must have a unfavourable balance. It is thena selfish policy which seeks protection at the expense of other countriesand which will reduce total international trade.a favourable balance of trade causes the country to accumulate foreignexchange balances which reduce the standard of living as they are onlyuseful that they can provide us with goods and services that can satisfymore and more wants. Over the last few decades there has been a general concensus of opion thatthe reduction of tarriffs is a good idea. This change of attitude and actionagainst protection has come about because of:the gradual change in the belief that high protection was in the nationalinterest; cost to the community of levels of protection afforded to manufacturingindustries; and Australia’s pursuit of more free world trade in agricultural produts, whichmeans they had to change their own manufacturing poicy.No matter what the result of the forthcoming election, there will be areduction in governments protction of industry that both parties tariffpolicies involve the gradual fading ou of Australia’s over-protection ofindustries.Labor’s exact plans are to reduce tarrifs for most industries to 5% by 1996,wiht clothing, textiles and footwear at 25% and automotive rates at !5% bythe year 2000, with no possible changes to legislated program until 1996.The liberal goal is for all industries by the year 2000 to be between 0 and5% tariffs, with no review 1996. With these policies in mind, if the protection industries are to survivewhen tariffs are dropped they must become more efficient and gain acompetitive advantage so as to successfully meet foreighn industries head onin free international trade. Hooper, Narelle. “Who’s best for Business”Business Review Weekly, February 12. EconomicsWaud, Hocking, Maxwell and BonniciHarper & Rowe. Sydney 1986Microeconomics of MarketsTisdell C.AJohn Wiley & Sons.Brisbane 1982Our Economic EnvironmentGallagher and BurkhardtMcGraw-Hill, 5th edition Sydney 1988