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The Intentions of Tariffs: Purposes Behind the Proposed 40% Anti-Dumping Duty on Manufactured Imports
Tariffs have been proposed in many different circumstances for a wide variety of reasons, and modern times are no different. In general, anti-dumping duties are imposed to prevent incredibly low prices on imported goods from competing with local producers and manufacturers that face higher costs (and thus deliver a higher cost product). Competitiveness of domestic manufacturers remains a large motivating factor in many tariffs imposed by varying national governments today, and are a feature of several countries with otherwise protective economies as well. Maintaining domestic competitiveness is not the only reason that imports are taxed by national governments, however, and this section will explore various possibilities as to the intent of the 40% tariff on imported manufactured goods.
Sometimes it is not direct competitiveness that it is hoped will be gained through the initiation of tariffs, but rather the stimulation of industry higher up in the supply chain that drives economic directors to impose these taxes. This is at least partially the case with proposed tariffs in Mexico, which it is predicted would reduce the country's importation of capital goods and, it is hoped by some, spur the domestic production of these goods (Kosteas 2008). Others contend that this would instead slow the development of Mexico's economy when the lack of capital goods leads to a lessened degree of productivity, but this would certainly not be the intent of the tariffs (Kosteas 2008). Regardless of which side of this debate might prove correct, tariffs can be implemented with the intention of expanding domestic industry.
Direct competitiveness is still a major reason for the imposition of tariffs, however, and often this is seen as the only way to create a truly fair and balance playing field, especially with modern shipping capabilities and the disparity in international wealth. Discussions of a tariff on tires imported from China grew rather pointed in the past year, with what one analyst described as "cheating" taking place on the part of Chinese tire manufacturers and importers, who flooded the American market with product that was much cheaper -- due to vastly cheaper labor costs, primarily -- than anything that could be produced domestically (Paul 2009). This had led to a significant loss in market share and attendant job loss in the American tire manufacturing industry, and arguments were made before Congress urging a progressive tariff on Chinese imports to allow the American industry time to adjust and regain a competitive foothold with the Chinese manufacturers (Paul 2009).
At times, worries about future competitiveness can also lead to tariffs in a way that is somewhat the opposite of the domestic-stimulating intent of such taxes. In India, a rapidly expanding sugar growing and refining industry is expected to suffer an extreme bounce-back of output for various reasons, leaving the entire industry vulnerable to foreign competition during a time of transition (Dutta 2010). In anticipation of higher per-unit costs for Indian sugar growers and refineries, the government is already considering a tariff on refined sugars being imported into the country (Dutta 2010). In this case, the tariff is meant to protect an already expanding industry rather than to try to stimulate further growth, but the tariff is the same.
In another offshoot of the need to maintain competitiveness, tariffs can also be imposed with the intention of correcting what are perceived as existing unfair advantages. For years, Brazil had imposed a twenty-percent tariff on all imported ethanol, effectively eliminating the domestic industry's foreign competitors -- primarily the United States -- and saw this tariff as especially necessary due to the subsidies that the United States government pays its corn farmers and ethanol producers (Kagan 2010). Brazil still has cheaper labor costs, more efficient means of production and a side industry that makes the production of ethanol more profitable, and these advancements have recently begun to be seen as enough to warrant healthy competition with the United States despite continued subsidies (Kagan 2010). The tariff existed, however, because these natural advantages were not originally enough to compete with the United States' ability to provide subsidies (Kagan 2010).
Brazil made tariff news again earlier this year when it cut another tariff for an entirely different reason. Citing a drop in the domestic production of cotton, the Brazilian government moved to end a ten percent tariff on cotton imports that has been in effect for years (YNFX 2010). In this instance, the tariff was originally put into place in order to protect domestic production efforts, and the suspension of the tariff's only a temporary measure in order to ensure that adequate supplies of cotton are maintained (YNFX 2010). Though tariffs are fairly straightforward, their use can actually be quite subtle and varied not only in their intentions but also in their effects on domestic and international economies.
The Industrial and Social Effects of Instituting Tariff Policies: The Economics of Political Activity
Tariff's are highly politically motivated, and the effects of such policies are directly sought by constituents of various representatives in the vast majority of tariff cases (Coneybeare 1991). The effects of tariffs are quite protective in their effects, almost automatically, and their implementation is a highly political act that is subject to a great deal of pressure from industry organizations and private companies (Coneybeare 1991). The proposed forty percent tariff on all imported manufactured goods is certainly at least in some measure a response to rising pressures form industry groups, private companies, labor unions, and shareholder organizations that want to see a return of American manufacturing jobs despite the fact that other countries -- most notably China, but many other countries as well -- can manufacture goods at a much cheaper rate, even when the shipping costs are factored into the price. A tariff on these goods would help "even the playing field."
The effects of tariff implementation are not only felt by the industries that press for them -- or the foreign industries and oftentimes domestic retailers and shippers that lobby against them. Tariffs also have significant political ramifications as well, and help turn electoral tides to the point of leading to changes in the control of Congress following the creation of tariffs (or the failure to create them) (Epstein and O'Halloran 1996). In this way, tariffs can have broader effects on industries than may be intended, and the effects of the proposed tariff could backlash against the instituting party during the next election cycle.
This could have especially interesting ramifications for the United States as it nears the mid-term elections of President Obama's first term. Studies have shown that governments in which the President and control of the Congress are split between opposing parties tend to have more protectionist policies, as measured by increased tariffs amongst other elements (Lohman & O'Halloran 1994). This means that, should this tariff succeed in assisting a further political shift in Congress, the industries that pushed for these tariffs will likely find themselves enjoying even greater protectionist efforts on the part of the government (Lohman & O'Halloran 1994). The domestic manufacturing sector will become far more competitive as a result of these tariffs, enabling greater profitability and restoring growth potential to this long-shrinking part of the economic landscape in this country.
The direct and planned-for effects of tariffs have more far-reaching and complex consequences than might be thought, with protectionist measures having an impact on the manufacturing industry in a variety of ways. Without adequate protection, many companies quite purposefully turn from manufacturing to importing as a means of generating greater profits, meaning tariffs can keep a manufacturing sector vibrant in the face of increasing international competition (Bell 1993). When manufacturing sectors have already languished and turned more heavily to importing, as is the case in many developed countries, tariffs can help persuade importers to turn back to manufacturing, and retailers to seek out domestically manufactured products for their reduced costs (Bell 1993).
These effects on the manufacturing industry make tariffs especially useful for countries that are still undergoing industrial development, allowing manufacturing to develop where it otherwise might ever get off the ground due to the ease of importing goods form developed countries (Cohen & Clarkson 2004). Manufacturing industries are essential for countries trying to develop their own infrastructure and the economic self-reliance to make independent decisions in the international community, and thus tariffs can have a major effect on the economic positioning of a country overall (Cohen & Clarkson 2004). Manufacturing companies that receive a boost in domestic sales due to the implementation of tariffs can also reduce their per-unit costs, making their products more competitive in international markets as well, and eventually tariffs can become obsolete in certain industries (though this is dependent on a host of complex international positions) (Cohen & Clarkson 2004).
The effects of tariffs are fairly simple, on a basic level: they create protections that allow domestic industries to flourish despite the availability of cheaper alternatives form foreign competitors. The far-reaching effects…[continue]
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