IGCSE Economics 0455

Topic: International Trade and Globalisation

Objective: Types of Trade Restrictions / Methods of Protection: Tariffs

This section focuses on tariffs, a common method governments use to protect domestic industries from foreign competition. We will explore what tariffs are, how they work, and their potential effects.

What are Tariffs?

A tariff is a tax imposed on goods that are imported into a country. It is typically a percentage of the value of the imported goods, but can also be a fixed amount per unit.

Types of Tariffs

There are several different ways tariffs can be structured:

• Ad Valorem Tariff: This is a tariff calculated as a percentage of the value of the imported good. For example, a 10% ad valorem tariff on goods valued at $100 would mean a tax of $10.
• Specific Tariff: This is a fixed amount of money charged for each unit of the imported good. For example, a specific tariff of $5 per kilogram of imported sugar.
• Compound Tariff: This involves a combination of ad valorem and specific tariffs.

How Tariffs Work

When a tariff is applied to imported goods, it increases the cost of those goods for consumers in the importing country. This makes domestically produced goods relatively cheaper and more attractive to consumers.

Effects of Tariffs

Tariffs have several potential effects, both positive and negative:

• Protection for Domestic Industries: Tariffs make imported goods more expensive, giving domestic producers a competitive advantage. This can help protect jobs and maintain domestic industries.
• Increased Prices for Consumers: Tariffs increase the cost of imported goods, which can lead to higher prices for consumers.
• Retaliation: When one country imposes tariffs, other countries may retaliate by imposing tariffs on the first country's exports. This can lead to trade wars.
• Reduced International Trade: Tariffs can reduce the volume of international trade, as both imports and exports become more expensive.
• Government Revenue: Tariffs generate revenue for the government.

Table: Types of Tariffs

Type of Tariff	Description
Ad Valorem	Percentage of the value of the imported good.
Specific	Fixed amount per unit of the imported good.
Compound	Combination of ad valorem and specific tariffs.

Suggested diagram: A simple diagram showing the flow of goods from a foreign country into a domestic country, with a tariff being applied at the border, increasing the price for consumers.