Specific tariff

Definition

A specific tariff is a fixed fee imposed on a specific quantity of imported goods, rather than a percentage of the value of those goods. This type of tariff is often used to protect domestic industries by making imported products more expensive, thereby encouraging consumers to buy local alternatives. Specific tariffs provide certainty for both importers and government revenue since they are based on a set amount per unit.

5 Must Know Facts For Your Next Test

1. Specific tariffs create a direct cost for each unit of imported goods, which can be easier for governments to administer and collect than variable tariffs.
2. They are often used for products that are seen as sensitive to competition from foreign markets, like agriculture or textiles.
3. The fixed nature of specific tariffs can lead to unpredictable effects on trade volumes, especially if the price of the imported goods fluctuates significantly.
4. Specific tariffs can sometimes lead to trade disputes, as exporting countries may view them as unfairly restrictive compared to ad valorem tariffs.
5. In some cases, countries may use specific tariffs as part of their broader trade policy to encourage certain industries or to retaliate against perceived unfair trade practices.

Review Questions

• How does a specific tariff differ from an ad valorem tariff, and what implications do these differences have for international trade?
  • A specific tariff imposes a fixed charge per unit of imported goods, while an ad valorem tariff is based on a percentage of the goods' value. This distinction affects international trade because specific tariffs provide more predictability in costs for importers and government revenue but may lead to unequal impacts when prices fluctuate. Ad valorem tariffs can adjust with market conditions, potentially leading to more stable trade volumes in response to price changes.
• What role do specific tariffs play in protecting domestic industries, and what are some potential downsides of their implementation?
  • Specific tariffs serve to protect domestic industries by increasing the cost of imported goods, making local products more attractive to consumers. However, the downsides include possible retaliation from trading partners, increased prices for consumers, and reduced competition which could lead to lower innovation and efficiency within domestic markets. Over-reliance on such protection can also hinder overall economic growth.
• Evaluate the effectiveness of specific tariffs compared to non-tariff barriers in achieving trade protection objectives while considering global trade agreements.
  • Specific tariffs can be effective in achieving trade protection objectives by providing clear and measurable costs on imports. However, they can sometimes be seen as more transparent than non-tariff barriers like quotas or regulations, which might invite scrutiny under global trade agreements. As countries seek to comply with international regulations while protecting domestic industries, the balance between specific tariffs and non-tariff barriers becomes crucial. The effectiveness ultimately depends on how well these measures align with trade relations and the economic environment.

Related terms

ad valorem tariff: An ad valorem tariff is a tax levied on imports based on a percentage of their value, contrasting with specific tariffs that are charged per unit.

import quota: An import quota is a limit on the quantity of a specific good that can be imported into a country during a given time period, aimed at protecting domestic producers.

non-tariff barrier: Non-tariff barriers are trade restrictions that do not involve tariffs, such as quotas, import licenses, and standards that must be met before goods can enter a market.