Several countries around the globe carry on the trade of products and services for decades. Trading is not new to the world, but in the ancient times, the way of trading was quite different. In earlier times trade was also done through barter systems or in exchange for gold and silver coins. Other nations ruled several countries and, in such cases, goods were just exported to the hometown of the ruling country. The times of changed and trade is a serious business and also the main source of income for several countries. Goods are exchanged for money, and the strict trade procedure is to be followed along with the payment of tariffs and other taxes.
Understanding the meaning and types of tariffs
A tariff is basically a tax imposed on imported goods by the government of the importing country. This is the reason why imported products are sold at a high price. Almost every country today imposes tariffs on the imported products. The tariff can be generally divided into two sectors which are:
Specific tariff: In simple words specific tariff a type of tariff wherein the exact amount to be paid as the tariff is fixed and any changes of price of the product in the international will not affect the tariff amount.
Ad valorem tariff: In this type of tariff the tariff to be paid is based upon a particular percentage of the total value of goods which are imported.In this type of tariffs, if the value of the product rises in the international market or decreases in the international market, the percentage will remain the same but the amount to be paid as tariff will vary as per the existing price of the product in international market.
The concept of trade war
A few nations around the globe are self-satisfied and import very fewer products, but there are many countries which export less and import more. As a result of this, the country which imports more has to pay a huge number of tariffs while the exporter country is benefited alot. The amount of tariff is usually set by the exporter country, and if a country has a monopoly in certain products, then they also ask for huge tariff amounts. In order to cover up the tariff amount, the importer country will ask for more tariffs on its products which are exported to other countries. This is nothing but trade war. Countries try to cover up their import cost through high tariffs on exported products. Trade wars are existing between countries around the globe however many countries are trying to maintain a trade balance.
The trade wars however not just affect the trade factors but also affect the pockets of the local citizens of their nation. Trade wars affect the country’s citizens in the following ways:
Costly products: As the home nation has to pay high tariffs on the imported products which are demanded by the citizen these products are charged high as compared to earlier. The reason for this is to cover up the tariff expenses to a certain extent and also to avoid a trade deficit.
Shortage of innovative and variety products: As a consumer or a citizen you may notice that due to trade wars the nation will only import standard quality product as more variety or products will lead to payment of heavy tariff amounts.Also, when a country is in a trade war, it stops buying fancy products which they earlier bought just to avoid trade imbalance. This is the reason why the citizens can find only a few innovative imported products.
Huge variety and availability of domestic goods: As only limited products are imported the market is flooded with domestic products, and there is a lot of variety in the domestic product as compared to earlier. Here the citizens are provided with a domestic substitute for imported goods which are comparatively cheaper and save their money.
Effects of a trade war on the nation’s economy
Free flow of domestic currency in the industrial market: Due to the competition amongst the nations and the existence of trade war there is a flow of foreign currencies in the world market. Due to this, the countries get a scope to grow in the international market and make the most use of their resources.
Increase in domestic production job opportunities:In case the exporter country raises the tariff above the expected bar then the importer country is encouraged to start the production of those products in their country itself. As a result of this, there is a rise in the national GDP and the employment options for citizens will also increase because this business will require workforce and skilled labor.
Measures to control trade wars /tariffs
In order to avoid trade wars or high tariffs, the countries can sit together and have a peaceful negotiation regarding the same as most of the times this works. Also,other factors such as maintaining healthy and friendly relationships with importer nations prove to be of great importance. Countries can also provide free or low-cost services to each other in exchange for low tariff rates.
On a whole trade war has not only an effect on the world economy but also the individual economy of the countries is affected. However, this has its own pro’s and, and it depends on the particular nation how it handles it. Due to the existence of trade wars a countries power to manage its economy and make a mark in the international market can be seen.Yes, tariffs do affect the individual economy, but it depends on how the nations take it; do they agree to pay the huge tariffs and lead to trade deficit or they make extreme decisions to make those products in the home nations. Many times, it becomes difficult to analyze whether a particular nation is actually benefited or not due to the existence of trade wars.
About the Author
Marina Thomas is a marketing and communication expert. She also serves as content developer with many years of experience. She helps clients in long term wealth plans. She has previously covered an extensive range of topics in her posts, including business debt consolidation and start-ups.