Global Financing and Exchange Rate Mechanisms Paper

A Tariff can be generalized as a comprehensive tax on goods that are imported from foreign countries. The goal of a tariff is to secure the domestic product of a given nation from cheaper goods which are imported from nations that have a larger producing capacity. Tariff also helps to balance

the prices in a country. Issues that may arise from tariff can be double sided. In other words, tariff has the power to bring businesses and governments down to instant financial security (Wikipedia, 2007).

There are many different tariffs in which each is designed for a specific operation. The most notable tariffs are the protective tariff, the revenue tariff, and the prohibitive tariff. The protective tariff was enacted to inflate the prices set by imported products which create a positive vacuum for domestically based industries. This type of tariff places high tax on foreign imports which in turn forces a given company to raise its prices above its competitors who are based domestically. The revenue tariff is designed to generate and accumulate large amount of finances for the government. An example of such tariff would be a country that has very little product. In order to keep the domestic gains strong the government will need to install tariff on the imported goods which will levy the prices. This act by the government creates a security blanket for the limited product of certain import goods. The prohibitive tariff is the worst tariff to use in a global market today. This type of tariff is used to eradicate competition between a foreign and domestic producer as well as to stop foreign imports in its track. It is similar to an embargo that is placed on a given country. The different types of tariff mentioned above are developed in tariff barriers for foreign market officials (Wikipedia, 2007).

Economical theories support that tariff barriers are a major hindrance as well as a form of degradation for the free market system. The fact of the matter is tariffs are bias when it comes to the consumer. This has been proven to be true in which the government along with its corporate attachments prevent consumer from achieving a product at the lowest price while still retaining quality. It is seldom for a given country to artificially preserve a withering industry while at the same time negate the larger scale global market imports. It is beneficial for a given country to let an industry fall into ruin than supporting it. The contribution to the countries GDP would be insufficient versus the rapid import of trade and development. A country that has a large scale tariffs is always equilibrium within the socioeconomic structure. There are problem that may arises due to the lack of competition between foreign and domestic businesses. History has shown that when there is no competition in a business sector, companies are apt to do less quality work and little innovation within a given sector (Yu, Z. 2006).

Non-tariff barriers are restrictions in the importing of goods but are not presented in the usual form of tariffs. The non-tariff barriers have been criticized throughout the years because it establishes free trade rules that could be negated to a certain extent. This type of barrier is apt to assume the form of production or manufacturing requirements of goods. An example of such would be the European Unions restriction on material that have been altered or meat that had been subjected to high levels of hormone supplements. Non-tariff barriers are used in situations when it is absolutely necessary to protect health, safety, sanitation or to protect depleting natural resources. The non-tariff barriers that are most often traded are procurement, state subsidies, trading, ownership, national regulations on health, safety, employment, product classification, quotas, multiplicity, exchange or control, buy national policy, over elaborate or inadequate infrastructure, intellectual property laws, corruption and bribery, restrictive licenses, unfair customs procedures, import bans, and lastly seasonal import regimes (Yu, Z. 2006.

Unlike tariff barriers, non-tariff barriers have a long lasting effect on trade. In recent
years, the tariff barriers have been significantly reduced leaving the non-tariff barriers to become prevalent in distorting as well as restricting international trade. This is being recognized as non-tariff barrier is ascertaining the position of conventional tariffs. Alan V. Deardorff (2006) stated in a report that “Calculation of the tariff equivalent of a given NTB for a given economic indicator is complex, and requires a great deal of information. Measures that are equivalent for one indicator will not be so for others, and there is no substitute for NTB-specific expertise.”

Many economists recognized the non-tariff barrier as the root that causes the breakdown of trade with countries and with major competitor in the propagation of menial social welfare. The non-tariff barrier increases conformity costs which subsequently leads to higher deadweight loss of social welfare that the equivalent tariff barriers. The resulting cost may reach a level that eliminates potential trade partners in particular the small ones from the market. Increasing trade policy transparency and reducing non-tariff barriers are essential in trade liberalization. Non-tariff as well as tariff barriers seem to set out in order to accomplish similar views. A person may assume that the different type of tariff barriers may be devious than the other; however, both tariff and non-tariff barriers are both synonymous subject matter whose ambitions are concentrated on domestic proliferation. One may say that tariffs are not detrimental to the socioeconomic future of a society as non-tariffs but the terms for both tariffs are somewhat the same.

Deardorff, A. (2006) Measurement of non-tariff barriers. Retrieved on August 5, 2006 from,2546,en26493485911111_2649_37431_1863852_1_1_1_37431,00.html
Global Facilitation Partnership (GFP). (2003-2006) Trade Policies and Non-Tariff Barriers.
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Wikipedia. (2006) Tariff. Retrieved on August 5, 2006 from,
Yu, Z. (2006) A Model of Substitution of Non-Tariff Barriers. Retrieved on August 5, 2006