Less Developed Nations Vs. Industrialized Nations

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• Less developed nations sometimes argue that the industrialized nations’ tariff structures discourage the less-developed nations from undergoing industrialization. How?
To understand the tariff structure of industrialized nations, it is important explain a nominal and an effective tariff rates. The nominal tariff rate is applied to the value of a finished product that is imported into a country. The nominal tariff rate is published in the country’s tariff schedule. The effective tariff is the nominal tariff of a finished product plus the nominal tariff applied to the raw materials or intermediate goods that are used to produce the finished product (113).
An industrialized nation’s low tariffs on primary commodities encourage the less developed nation to expand their operations in that sector. Industrialized nations have a high tariff on manufactured goods. Tariff reductions on raw materials add to the discrepancy between nominal and effective tariffs of the industrialized nation. This worsens the competitive position in the manufacturing and processing sectors and poses an entry barrier for the less developed nation discouraging diversification as they can’t compete in that commodity sector (115-116).
Industrialized nations operate using a tariff structure referred to as tariff escalation. This is characterized by rising rates that give greater protection to intermediate and finished products than to primary commodities. Raw materials may be imported at a low tariff rate but both the nominal and effective tariff rates increase at every stage of production. Tariffs often rise with the level of processing in industrial countries. To the developing nation, it must seem it is better off not industrializing (116).
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... deadweight loss of the tariff.
If it is assumed that a nation plans for a small portion of international trade, then collecting an import tariff will lower its national welfare. This is because there is not a positive welfare effect from the tariff to offset the deadweight loss of consumer surplus. If a nation could impose a tariff that would improve the terms of trade with its trading partners, then it would have a larger share of the gains from trade. This might increase the national welfare and offset the deadweight loss of consumer surplus. A small country doesn’t have enough economic trading power to influence the terms of trade. So for a small country, an import tariff reduces a small nation’s welfare (125).

Works Cited
Carbaugh, Robert J., “International Economics”, 12th ed., Mason, OH: Thomson South-Western, a part of the Thomson Corporation, 2009.
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