Tariff and Non-Tariff Barriers

Tariff and Non-Tariff Barriers

Tariff and non-tariff effect global financing operations by having an impact on whether countries will build and invest in companies in the home country. If an organization wants to build a company that imports raw material that has a tariff on it, it would make the product considerably more expensive to produce and export. Tariffs do benefit the government by increasing the revenue and also benefit home-based businesses by decreasing foreign competition. The tariff also helps protect jobs in the industry that has eliminated the foreign competition but a negative impact is felt because it causes the consumer to pay more for a product that is imported (Hill, 2004). If a country it prone to levy tariffs on items that an organization may need, it would increase the risk of doing business while located in that company. By having a country manufacture or produce product that can be done for less elsewhere is not a wise utilization of resources and in turn harms global trade.

When foreign countries can enter a home country and sell product for less, people usually see this as a great trade opportunity. However, if that product is manufactured in the home country then the home country not only loses revenue from sales on that product but the economic impacts can run even deeper. With no need to manufacture that product companies will no longer need to purchase the raw materials or hire the employees necessary to maintain the demand. To eliminate this from occurring or to impose a type of trade restriction on a foreign country tariffs and non-tariffs are utilized. General Agreement on Tariffs and Trade (GATT) was succeeded by the World Trade Organization monitors tariffs and promotes free trade (Hill, 2004).

Tariffs can protect the local industries that face competition from imported goods by imposing tariffs. Tariffs are effective and widely used to protect the local industries from foreign competition (Saranovic, 2006). However, this protection comes with an economic cost, where consumers have to pay a higher price to imported goods, which effectively lowering their buying power and leads to inefficient allocation of resources.

Tariff is a tax applied to an import and is one of the oldest trade policies in effect. This tax is generally revenue for the host country’s government. There are two types of tariffs; specific tariff and ad valorem tariff (Hill, 2004). A specific tariff applies a set tax to a certain import.