A country’s tariff system may have uneven benefits, but it is undeniably an important source of revenue especially for developing markets as well as advanced industrial nations. Basically, it is a tax imposed on imported goods that enter a domestic market. Additionally, it is also an economic tool that reduces competition against domestic industries. Any change in the tariff system may be an important financial considerion amongst investors and portfolio managers, including the likes of LOM Financial.
The importance of tariffs and why such trade barrier matters can be seen through how they are used by developed as well as infant industries.
The imposition of tariffs on imported goods from foreign competitors is the government’s way of protecting the state of domestic employment. If foreign companies can produce and sell goods cheaper, it presents production abroad a much more suitable option for business owners, thus leading to unemployment and local companies going bankrupt.
Tariffs don’t only allow a country’s chance of empowering its workers. It can also be used to protect its ordinary consumers from possibly harmful foreign goods and products. Higher tariffs can be a tougher barrier for these goods to enter the country.
Most importantly, tariffs may serve as a defensive tool against another country’s unfavorable trading practices. For instance, the on-going trade war between the United States and other countries (China, Mexico, Canada, and EU) describes such scenario where tariffs are used by the two or more parties as a retaliatory tool against one another.
According to latest updates on this present trade war, President Donald Trump imposed a tariff of 25% on steel imports and another 10% on aluminum on its allies, EU, Canada, and Mexico. Another $50 billion worth of tariffs also targeted Chinese goods. As news of retaliation from these countries made it to the headlines, Trump promises more measures and trade barriers that could escalate things further.