Tariff

A tariff is a tax that is applied to all goods that are exported and imported. The most frequent is the tax charged on imports, while tariffs on exports are less common; There may also be transit duties that are levied on products entering one country with destination to another.

When a ship arrives at a customs port, a customs officer inspects the contents of the cargo and applies a tax according to the rate stipulated for the type of product. Because the goods cannot be nationalized (incorporated into the economy of the receiving territory) until the tax is paid, it is one of the easiest taxes to collect, and the cost of collecting it is low. Smuggling is the clandestine entry, exit and sale of merchandise without paying the corresponding tariffs.

Classification factors

- Commercial: Trade facilitation, shorter operating time, inclusion of new products.

- Control: Statistical data, facilitation of control and trade promotion programs.

- Security: Protection mechanisms for the population, flora and fauna, identification of sensitive, dangerous, controlled merchandise, etc.

Tariff Types

There are four types of tariffs:

• Ad valorem: Represents a fixed percentage on the value of a product, according to the customs value, which can be of import or export. It is similar to a proportional tax since its value is not modified according to the tax base. For example, 5 % of tariff, means that import tariff is 5 % of the value of the goods in question. However, if the authority has doubts or suspicions that the goods do not have the declared value they can apply valuation methods.
• Specific: It is imposed in terms of specific monetary charges or charges (in dollars) per physical unit of product, applied from a quantitative perspective and, regularly, to the import. It is consistent with the number of units arriving in the importing country and not according to the price or value of the imports. For example, $100 per metric ton of the merchandise.
• Joint: Both tariffs (ad valorem and specific) apply, that is, a certain amount per unit will be charged in addition to a fixed percentage of the value of each product.
• Compound: This is a tariff ad valorem setting a minimum or maximum perception. It can also be a specific tariff that will apply when ad valorem do not reach a minimum or exceed a maximum. Composite tariff neutralizes the cost disadvantage of national manufacturers resulting from tariff protection granted to national suppliers of raw materials, and portion ad valorem the tax gives protection to the finished products industry.

In addition to the aforementioned classification, tariffs can have different modalities:

a) Tariff-quota: It is applied when a tariff level is established for a certain quantity or value of the merchandise and a different rate to the merchandise that exceeds the indicated amount

b) Seasonal tariff: that is, the amount to be paid for the amount of merchandise that is imported and/or exported varies according to the time of year in which the transaction is carried out.

Effects of the tariff

A tariff imposed on a merchandise generally raises its price, this causes lower than expected consumption of the imported product and therefore imports are reduced, this favors the nascent national industry, strategic trade is created and above all a protection against unfair practices in Foreign Trade, which is undoubtedly the main thing in establishing a tariff on an imported product, it is also for this reason that most export quotas are exempt, since what is sought is to promote the export of national products and cover a larger international market.

The fundamental effects caused by an import tariff in the economy of a country are the following:

• The fiscal effect represents an increase in the collection of the State and in products with inelastic demands (demand of essential products), the greater the tax collection, such as tariffs on the import of gasoline. The resources generated by this way are increasingly of less relative importance, within the State ' s income from industrialized countries, while they are of greater quantitative importance in the income of developing countries.
• Decreasing imports, consumption of products subject to tariff and improving the position of the trade balance of countries.
• Increased price of the products subject to tariff in the national market is therefore negative for the consumer. In addition to driving the country to use resources inefficiently by sacrificing production^{[chuckles]required]}
• Increased domestic production of goods with tariffs, The imposition of a tariff has two sides, on the one hand, serves as a protection by allowing the installed companies to grow exempt from the competition of the international market, and on the other hand, an excess of protection can produce a product under conditions of inefficiency because, this production is obtained under tariff and at costs above the international ones,^{[chuckles]required]} diverting resources that would be used to produce other goods with greater competitive advantages.

Optimum Tariff

The optimal tariff is the tariff that maximizes the welfare or utility of a country. The argument for this tariff is based on the idea that when a large country establishes a tariff on imports of a certain "AA" product, this tariff causes a reduction in world demand and a decrease in the world price. of good AA. The importing country will have a smaller volume of trade but at more favorable prices. The optimum will be the point where the gains from the improvement in import terms are equal to the losses resulting from the lower volume of quantity imported. This argument is only valid for large countries, whose demand is capable of influencing the world price of a product.

The optimal tariff represents a safe argument in favor of tariffs, which causes an impoverishment of neighboring countries, so the danger lies in retaliation from other countries that could take similar measures. In the long run, this situation could not improve global or individual economic well-being.

Retaliatory Tariffs

Certain positions agree that a world of free trade is the best solution to international trade,^{[citation needed]}however, they indicate that in the current state of the economy, while there are countries that limit imports or discriminate against foreign products, there is no other remedy than to play the same game to defend themselves. Free trade will be accepted as long as the same conditions are used in all countries.

This argument is not well founded, when a country raises its tariffs, it has a similar effect to raising its transportation costs. A simile would be found for the fact that if a country decided to stop its trade by mining its ports, the others should not make the same decision; In the same way, if a country decides to reduce its economic activity by imposing tariffs on its imports^{[citation needed]}s, it would not be sensible for the others to follow the same behavior. Historical studies show that retaliatory tariffs often lead other countries to raise theirs even higher and that they are rarely an effective negotiating weapon for multilateral tariff reductions.

Non-tariff protection

To defend an economy from the possible negative effects of international trade, tariffs and other types of non-tariff barriers can be used, such as:

• Contingent, which consists of a limitation of the number of units that can be imported.
• Change control. By restricting foreign exchange and establishing different exchange rates according to the imported goods.
• Subsidies to production. Subsidize a production to compete with imports.
• Taxes on the consumption of imported goods.
• Establishment of administrative obstacles to the entry of foreign products.