Arguments for and against the establishment of tariffs.steemCreated with Sketch.

in blog •  14 days ago

For centuries, the means and interests in international trade have discussed the advantages and disadvantages of implementing measures that hinder free trade. From the point of view of its economic efficiency there is no doubt about the advantages of foreign trade is not necessary, that is, of free trade. But there is a series of facts that advise or justify, according to the cases, a certain degree of interventionism or protectionism.

In fact, an international trade regime, perfect, that is, a situation in which it is free, the circulation of goods and services in countries without any kind of work, not even in economic history. There have been moments of greater or lesser degree of liberation in international economic relations, but it has always existed. In economic literature, these types of provisions are called protectionist measures .

The arguments used to justify the establishment of this type of measures are diverse. Sometimes, what is intended is to protect an industry that is considered strategic for national security. Other times, such provisions are adopted to try to promote industrialization through a process of import substitution for products manufactured in the country itself. Another argument in defense of the protectionist measures is to make possible the development of nascent industries, that is, industries that could not compete with those of other countries where they have developed before.


The fact is that according to the aforementioned arguments, there have been various types of interventions on international trade, which integrate what is called commercial policy. In this section we will focus on the analysis of tariffs and then we will study the other measures.

Trade policy influences international trade through tariffs, import quotas, non-tariff barriers and export subsidies.

Tariffs have traditionally been the most important of the various measures that make up the commercial policy.

A tariff is a tax that the government demands from foreign products in order to raise its sales price in the domestic market, and thus protect domestic products so that they do not suffer from competition from cheaper goods.

Tariffs cause economic inefficiency, since the loss caused to consumers exceeds the sum of the tariff revenues obtained by the State and the extra benefits received by domestic producers.

The establishment of a tariff has four fundamental effects: it encourages certain inefficient companies to produce, it induces consumers to reduce their purchases of the good on which the tariff is imposed below the efficient level, it raises the income of the State and it allows the national production increase. Only the first two effects necessarily involve a waste of resources.


Arguments for and against the establishment of tariffs.

The arguments for and against the establishment of tariffs coincide, respectively, with those formulated by the defenders and opponents of trade protectionism. These can be summarized in the following points.

  • Defense of the national industry.
  • To compensate that the labor of other countries is cheaper.
  • Defense against subsidies from another country.


Those who defend the establishment of tariffs argue that waste avoidance is not the only objective of society and point out that tariffs can be good, as a whole, for a country at a given time. They point out that a tariffs a way to protect the national industry and to encourage the creation of employment.
Given this argument, it can be pointed out that although the tariff reduces the incentives to consume imported goods and protects domestic producers, it does not do so in the most appropriate manner. National producers can also be protected directly by granting subsidies to production, without affecting consumption and therefore reducing wastage

It is also argued that tariffs must be established to defend domestic producers because the other countries use cheap labor.
Two objections can be made to this argument: First, that while foreign wages may be lower, it is likely that foreign workers will be less productive. In this case, more foreign than national labor will be needed to produce a unit of the imported good and the cost of foreign labor per unit of product may not be less than the national unit labor cost.

Secondly, it must be remembered that one of the factors that explains international trade is the existence of international differences in factor endowments. Trade appears as a way to exploit the peculiar conditions of each country and ultimately to take advantage of comparative advantages, exporting those products that we can produce at a lower relative cost and importing the products in which other countries have a comparative advantage. If some countries have abundant and cheap labor that allows them to produce certain products that are labor intensive at a lower cost, they should be allowed to take advantage of their comparative advantage in that type of goods and reorient the domestic industry towards other products for those who are better equipped.


Advocates of tariffs also often claim that these are a legitimate way to defend themselves against the subsidies that foreign governments grant to their producers.

The validity of this argument depends on whether the subsidy is offered on a temporary or permanent basis. In the event that the subsidy is permanent, no objection should be presented since a foreign government would be subsidizing the national consumption of certain goods. However, it would be appropriate to design aid for domestic producers that are negatively affected.

When the subsidy is temporary, justified by the attempt of a foreign government to help the producers to face a certain crisis. the situation is different. In that case, if no action is taken to restrict trade, it will be the domestic producers that will be affected by the disturbance. This is because, initially, given the entry of cheap foreign products, domestic producers will have to reduce activity and subsequently, when the subsidy disappears, they must increase it.

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