Do Tariffs help us to maintain a favorable balance of trade and balance of payments?
What do you think? What is the purpose of tariffs? We'll be glad to critique your answer.
tarrifs are used to controll imports and allow production to adjust to consumer demand
Right. Do you think they help us maintain a balance of trade and a balance of payments?
These sites should help you answer that question.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=513761
http://en.wikipedia.org/wiki/Trade_surplus
http://en.wikipedia.org/wiki/Tariff
Perhaps you should read Chapter 3 and find out! ;)
do you feel tariffs helps us to maintain a favorable balance of trade and balance payments?
Why be rude when someone is asking for help?
Tariffs can have an impact on a country's balance of trade and balance of payments, although the overall effects are subject to debate among economists. Let's break down the concept and the reasoning behind these viewpoints.
Tariffs refer to taxes or duties imposed on imported goods. Their primary purpose is to protect domestic industries and raise revenue for the government. Tariffs can influence the balance of trade, which is the difference between a country's exports and imports.
Advocates of tariffs argue that they can help maintain a favorable balance of trade by:
1. Protecting domestic industries: Tariffs can make imported goods more expensive, which gives an advantage to local industries by raising the price competitiveness of domestic products. This protection is intended to promote economic growth, job creation, and maintain a healthy domestic industry.
2. Reducing imports: If tariffs make imported goods costlier, consumers might choose to buy domestic goods instead. This lowers imports, which can improve the balance of trade by reducing the trade deficit (the situation when imports exceed exports).
However, there are opposing arguments against tariffs:
1. Trade War Potential: When one country imposes tariffs, another may retaliate with their own tariffs. This can lead to a trade war, where both countries increase tariffs on each other's goods and hinder trade. Trade wars can harm both economies and lead to higher prices for consumers.
2. Reduced Export Competitiveness: Tariffs can provoke other countries to impose retaliatory tariffs on the country that initially applied them. This retaliation can harm domestic industries that rely on exports and disrupt the balance of trade further.
3. Consumer Cost: Tariffs increase the price of imported goods, which can burden consumers by raising the cost of living. This reduction in purchasing power might impact overall economic growth.
Regarding the balance of payments, tariffs can impact it indirectly through their influence on the balance of trade. The balance of payments consists of the current account and capital account. The current account includes trade in goods and services, while the capital account includes foreign investments and loans.
If tariffs reduce imports (and potentially exports due to retaliation), it might affect the current account balance, which contributes to the overall balance of payments. A trade surplus (exports exceeding imports) could contribute to a favorable balance of payments. However, this effect relies on complex factors beyond just tariffs.
In conclusion, while tariffs can have implications for the balance of trade and balance of payments, their overall impact is a matter of debate. It's crucial to consider both the potential benefits of protecting domestic industries and the potential negative consequences such as trade wars, reduced export competitiveness, and increased costs for consumers.