In conclusion, we can see that a tariff can have more than
one ethical and other effects on the economy, both negative and positive.
There is another positive effect in the form of government
revenue from the tariff. The tariff as explained earlier is essentially a tax
imposed on imports. Taxes generate revenue for governments. With this revenue,
the government will now have more money to invest into other avenues in the
economy such as health care, education, workshops and programmes for skill
building to help the unemployed and even give subsidies to firms to increase
However, with a tariff in place, we will be boosting the
local economy. Due to an increase in demand of local products due to imports
being more expensive, companies will look to expand their business by employing
more workers and getting more efficient machinery to produce at a lower cost.
Due to building of new factories and production plants in rural areas, the
firms will be creating more jobs for people thus reducing unemployment in the
country. This helps as now more people can afford to buy goods for consumption
and usage. This will draw in more profits for the company. However, there is a
negative externality with expansion of businesses as this would lead to
deforestation to build production plants and will also result in large amounts
of air and land pollution due to more machinery usage.
Tariffs affect an economy in two ways. A tariff is placed to
increase the price of imports to boost local production and to encourage the
consumption of local products. However, this could affect exports as well because
other countries may be facing the same problem and hence will be putting their
own tariffs on goods. This would therefore, affect exports since people will be
less likely to demand our goods due to this tariff. This may result in domestic
firms trying to cut costs as they would want to export more for higher revenue.
This may mean laying off workers and reduction of wages. This poses an ethical
conflict as human lives will be affected.
The blue shaded region shows the consumer surplus which is
the difference in the amount consumers are willing and able to buy and the
amount they paid for the good. The black shaded region below the consumer
surplus is denoted as the producer surplus, which is the difference in the
amount producers are willing and able to sell for and the amount they receive.
After the tariff is implemented, the world price of panels
increases to (Pw + t). This pushes the quantity demanded to Qd1 and the
quantity supplied to Qs1. This shows a far less difference between the two
quantities thus depicting a fall in the amount of imports. The pencil shaded
region shows the amount of government tax revenue earned due to the tariff.
However, due to the tariff there is a dead weight loss shown by the two
triangles A and B where no one gains due to the tariff.
In the diagram given we see the impact of a tariff. Initially
before the tariff is implemented, the local price of solar panels is at P* and
the quantity produced is Q*. The world price of solar panels which is denoted
by Pw, is seen to be much lower than the local price of P*. Therefore, the
quantity demanded for the panels is Qd while the local supply of panels is
denoted by Qs. The difference between these two quantities is the amount of
imports before the tariff is implemented.
The third method of implementing a trade restriction is to
use subsidies. A subsidy is a grant provided by the government to reduce the
cost of production for firms. This in a way, is the reverse of a tariff. The
use of subsidies will push the cost of production for local firms down thus
making local goods a lot cheaper than before. This in turn would result in a
reduction of the demand for imported goods and an increase in demand and supply
for local goods. The only downside is that taxpayers who may not use this good
will also end up paying for it as well as those who use it.
Another method is the use of economic embargos. Embargos stop
the export and import to and/or from other countries. Sometimes this may even
include the complete stop on all trade with a country for political reasons
such as in the case of Serbia during the Yugoslav wars.
In the context of the given source, one such method is to use
a tariff. A tariff is a tax imposed by the importing country (such as the one
done by USA on solar panels) when the imported good crosses the international
boundary. There are two types of tariffs namely, Protective Tariffs and Revenue
Tariffs. Protective Tariffs are used to make foreign goods more expensive thus
encouraging consumers to turn towards local producers. In the case of USA, the
35% tariff will result in consumers looking to buy from local solar panel
producer. The second type is known as Revenue Tariffs. These are similar to a
tax and help the government gain revenue.
Trade restrictions are artificial restrictions placed on the
trade of goods and/or services between countries. There are numerous ways in
which a country can implement these restrictions.