Sunday, September 25, 2011

Can tariff protect the U.S. economy?

According the concept of tariff, we understand that tariff is used to protect the domestic industries that are comparative disadvantage in the market competition with foreign companies. When the domestic products lost competitive in the market, there market share will be decreased and people in this industry will lose jobs. So the government may raise the tariff of import products to protect domestic industry. This method is common since the global trade exist. However, does tariff benefit the economy?

When the U.S. government added 35 percent of tariff to tires imported from china, the U.S. tire industry became competitive of price in temporary, because of the increased price of imported tires. However, all the people in U.S. have to pay more money to buy tires. The consumers were responsible for the increase of price. If more and more industries apply tariff to protect the jobs, the price level will be increased and people need more income to live, which caused a higher level of labor price. So in long term, the cost of U.S. tire industry will be increased.

The increase of tariff for import goods also caused the decrease of the export. When a country raises the import tariff, the other countries may also raise the tariff of products from your country to resist it. The decrease of the export also can affect the economy and job. Such as China raised the import chicken feet tariff when U.S. raised the tire tariff of china tires. As a result, two sides will be losing in this competition.  

Global specialization improve the efficient of the world, each countries specialized in the industry which they have comparative advantage to produce goods. When U.S. companies find that the labor costs is too high to afford, some of them consider to move the factories to low labor cost countries, such as China, India and Brazil, and then import the products to U.S. market. We cannot stop this trend, the best way we can do is to develop the technology and improve the productivity. The agreement between countries to lower the tariff to each other is benefit for countries and avoid the trade war.



  


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