Classwork Series and Exercises {Commerce – SS1}: Tariffs and Restrictions

Commerce, SS 1, Week 5

Topic: Tariffs or Restrictions to Trade

Contents:

1. Definition of Tariffs
2. Reasons for imposition of Tariffs or restriction of trade
3. Tools or instrument of trade restrictions

Definition of Tariffs

Tariffs are taxes or duties imposed on imports and exports by the Government of a country. Tariffs is majorly to restrict the volume of trade or improve the international terms of trade.

Reasons for imposition of Tariffs or restriction of Trade

• To generate revenue: Tariffs are imposed on goods so as to generate income for the country. So many country generates their income through the tariffs.
• To prevent importation of dangerous goods:Dangerous and harmful goods can be prevented through restrictions.
• Retaliatory measures: Tariffs can be used in retaliation against countries which impose tax on their imports.
• To improve balance of  payments deficit: The unfavorable balance of payments can be corrected by imposing tariffs on imported goods.
• To prevent dumping: Tariffs are imposed to prevent dumping of goods from foreign countries. This is to prevent foreign goods from being sold at prices lower than the home price.
• Employment generation: Tariffs is imposed on goods to encourage the establishment of local industries or enhance the expansion and growth of existing ones so as to provide job opportunities.
• Political motive:Tariffs can be introduced as discriminatory measures against unfriendly countries.
• To promote self-sufficiency:Tariffs are imposed on imported goods to enable a country to be self sufficient in production of numerous goods

Tools or instrument of Trade Restrictions

The tools used for restrictions in International Trade are explained below:

• Embargo: This is the prohibition or outright ban placed on some imported goods.
• Import quota: Import quota restricts imports by imposing a limit on the quantity of goods that can be imported in a particular country.
• Excise duties reduction:This method helps to reduce the prices of locally made goods so as to enable people to patronize them instead of foreign made goods.
• Foreign exchange control: Trade can be controlled by reducing the foreign exchange available for trade transactions.
• Preferential duties: In other to either encourage or discourage the importation of some certain goods from certain countries, discriminate duties are charged on these goods.
• Import monopoly: This refers to a situation in which the government of a country takes over the importation of certain goods which are only essential to the country.

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