Trade tariffs are taxes on goods crossing borders, originally used for national revenue but now often based on protectionism. Tariffs can be imposed in response to trade restrictions, to correct trade imbalances, or to tax items from countries with lower environmental standards. The World Customs Organization established commercial tariff standards and an identification code for goods. Trading blocs, customs unions, and free trade zones have become more common, but there is debate about the advantages and disadvantages of abolishing all tariffs and adopting global free trade.
A significant aspect of international foreign policy is the imposition or abolition of trade tariffs. A trade tariff is a tax or duty that is levied on goods crossing political borders. Import tariffs are the most common and involve a tax to be assessed on products from another county. Export tariffs, which are less common, are duties on goods shipped out of the country.
Originally, the primary purpose of a trade tariff was to create a source of national revenue. European and Asian trade routes crossed many borders, and imposing a tariff on merchants seemed an effective, relatively simple source of income. As production has increased, however, the reason for the tariffs has changed. Most tariffs are now based on protectionism, an economic policy that seeks to protect a nation’s economy by restricting trade from other countries. This frequently occurs when the importing nation is able to produce a product at a lower cost, possibly due to a lower wage scale.
A trade tariff can also be levied by one nation against another in response to trade restrictions imposed against it. If these retaliatory tariffs increase, the situation is referred to as a tariff war or trade war. Tariffs have also been used to try to correct a trade imbalance between two countries. A trade deficit exists when imports exceed exports. A trade surplus exists when exports exceed imports.
One of the challenges of import taxation is to achieve international uniformity in the assessment of tariffs. In 1947 a study group was commissioned to seek a solution to this problem and that committee eventually became the World Customs Organization. The group has expanded from the original 13 European nations to over 170 member countries. They established commercial tariff standards and established an identification code for goods, called the International Harmonized Commodity Description and Coding System (HS). This group has streamlined customs worldwide and now handles 98% of world trade.
One type of commercial tariff, the ad valorem tariff, charges a fixed percentage of the value of the goods. However, this method can cause some problems, as the values can change frequently. A specific rate charges a set monetary amount based on the type of product being shipped. A prohibitive tariff is a commercial tariff set so high that the product is no longer affordable. An environmental, or green, tariff is a relatively new creation and is used to tax items imported from countries with lower environmental standards.
As international trade has become more widespread, the number and scale of duties have decreased. Trade blocs, customs unions and free trade zones have become much more common. A trading bloc is a group of nations that agree to lower or eliminate tariffs among member nations and to apply a uniform trade tariff to nations outside the bloc. Customs unions are formed by countries that set common external tariffs and agree on a formula for sharing the tariffs collected. A free trade area is a geographic region that has agreed to eliminate tariffs and trade restrictions between member nations.
There is much debate about the advantages and disadvantages of abolishing all tariffs and adopting global free trade. While such a move might benefit some countries, other small or developing nations could be economically devastated. Most countries seem to prefer to reserve the right to control imports by engaging in smaller trade blocs cooperatively.
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