Tariffs help us to maintain a favorable balance of trade and balance of payments. is this true? why or why not.
Please help
Check these sites.
http://www.fff.org/freedom/0191c.asp
http://www.studyworld.com/newsite/ReportEssay/science/Technical%5CThe_Protective_Tariff-381758.htm
http://library.thinkquest.org/C004323/low/basics3.html
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Tariffs, which are taxes on imported goods and services, can have an impact on a country's balance of trade and balance of payments, but whether they help maintain a favorable balance or not is a complex question that depends on various factors.
A balance of trade refers to the difference between the value of a country's exports and the value of its imports. If a country's exports exceed its imports, it has a trade surplus, which is generally viewed as favorable. On the other hand, if imports exceed exports, it results in a trade deficit, which is often seen as unfavorable.
Tariffs can affect the balance of trade by making imported goods more expensive, thereby reducing demand for them. This, in turn, may lead to a decrease in imports and potentially improve the balance of trade. However, tariffs can also have negative effects. They can provoke retaliatory measures from other countries, leading to reduced exports and impacting the balance of trade negatively. Additionally, tariffs can increase costs for domestic businesses reliant on imported materials, leading to higher prices and decreased competitiveness.
Balance of payments, on the other hand, takes into account not only the trade balance but also other international transactions involving money flows. It includes items such as foreign direct investment, remittances, and tourism. Tariffs can impact a country's balance of payments by influencing the overall trade balance as well as affecting the attractiveness of the country for foreign investment.
In summary, whether tariffs help maintain a favorable balance of trade and balance of payments is not definitive. It depends on a variety of factors, including the specific policies implemented, the reactions of other countries, and the overall economic situation. Analyzing the impact of trade policies requires a comprehensive examination of various aspects, such as prices, demand, competitiveness, and global economic conditions.