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What is the customs tariff

What is the customs tariff 

A customs tariff is an import tax on goods coming into the country, so when an item arrives at customs from the sea , plane or car , the import tax is due based on the current “schedule.” This schedule is basically a list of items that are taxed differently, so For example, an Apple MacBook might incur a 10 percent tariff from China , while a Sony TV is only worth five percent.

The money raised then goes to the government as with any other type of tax, in return it is seen as an indirect form of taxation where consumers are not taxed directly but through the import process.

Sometimes higher tariffs are imposed on products in order to prevent cheaper products from entering which may protect domestic jobs from international competition. For example, the US auto industry has been undercut by cheap imports for years, with recent tariffs helping in this regard.

New tariffs have made imported goods more expensive, creating a greater incentive for manufacturers to avoid paying these duties and to manufacture in the United States instead.

Who pays customs duties?

Technically, tariffs are paid by importers, this is paid upon entry into the country, however these costs are usually passed directly to the customer through higher prices and at the following points the people who ultimately bear the tariffs:

  • Consumers

As we saw during the Sino-US trade war, companies have no choice but to increase prices for consumers. The cost of moving and investing in another country will cost billions of companies after many of them have already moved to China and other countries, and this led a number of companies to announce in 2019, that prices It will rise, jobs will be lost and profits will fall.

The logic is quite clear, by imposing a higher tariff, it creates an additional cost for the supplier, this works in the same way as higher input or labor costs, if the provision of the product costs more it will be reflected in the price.

  • companies

Some companies may not necessarily pass on 100 percent of the costs, and internally they may absorb some of the costs into profits, this may be in order to maintain consumer demand if pricing is sensitive to change, a price increase may significantly affect the demand for the company's goods, so it may be It's more profitable to get a small profit instead, so as consumers pay more some businesses will be affected as well.

Tariff types

  • Value tariffs

This type of tariff comes in the form of percentages and not specific monetary values. For example, there is a 10 percent tariff on imported cars. If the car is worth $10,000, the tariff will be $1,000. However, if the car is $20,000, it will be worth $2,000.

  • specific definitions

A specific tariff is one that is levied directly on a single product but does not depend on its value. This is usually levied on a weighted unit or unit basis. For example, certain types of milk in the US face a tariff of 3.2 cents per liter. It is easy to confuse specific tariffs with tariffs. By value, however the main difference is that a given tariff is related to the number of units received, and this is in contrast to ad valorem definitions which only look at value.

  • Compound tariffs

A composite tariff is essentially a combination of value-added and set tariffs, so it includes both a cost per unit, eg $1 per kilogram, plus a specified percentage of the item's value, eg 10 percent.

  • share tariff rate

Tariff rate share combines two trade policies in tariffs and quotas, which operate by imposing a specific tariff on imported goods up to a certain amount, for example there may be a 10 percent tariff on imports up to 1,000 units, however for imported goods exceeding 1,000 units it will increase The tariff, for example, may rise to 30 percent.

Why use tariff

Tariffs are used for a number of reasons, and some countries may focus only on one factor while others may take it into account. Among the reasons for using a tariff are:

  • Protecting local workers

By charging importers a cost, their goods become more expensive, and as a result it provides a competitive advantage to local suppliers. For example, a Chinese manufacturer may want to import shoes to the US market, its price is $80 while local competition sells a similar product for $100. A 30 percent tariff increases the price to $104, while Chinese shoes are becoming less and less desirable.

Without tariffs, Chinese shoes are cheaper and many consumers will view them as desirable, which in turn removes demand from local suppliers, which means they need to manufacture fewer shoes. As a result, local suppliers will need fewer employees in their factories and offices.

In large markets such as manufacturing, job losses are noticeable, so governments are looking to garner public support by providing protection for such industries, while this may not affect the voting intentions of a larger population, it can play an important role in winning Workers' voices.

  • Protecting emerging industries

In new and upcoming industries, some countries look to protect small businesses from international competition, and this generally occurs in developing countries but is also sometimes used among developed nations.

The concept of nascent industries stems from the idea that new companies need protection in order to thrive. For example, South Africa is not famous for its car manufacturing, yet it can import big brands like Ford, and this makes it very difficult for local manufacturers to compete, they not only have to compete with the brand business, but also price and efficiencies.

Some countries may look at an industry and think that it must be nurtured so that it can grow, and this may be because the industry is necessary for the defense or welfare of the nation, or perhaps the nation aims to create new jobs.

  • Maintain national security

Industries such as steel, technology and aerospace are seen as key to national security. There is even a case to be made in agriculture. For example, if a nation goes to war, it may become dependent on its internal capacity to produce food. As a result, these industries are seen as essential components that must protect it.

Not only are tariffs generally imposed but subsidies or even industries have been nationalized.

  • Revenge

As we saw in the US-China trade war, countries can impose retaliatory tariffs, for example, the US imposed tariffs on China due to the current high tariffs on its exports, the goal was to get China to reduce its tariffs, however what followed was retaliation From ever-increasing tariffs.

Countries may also impose tariffs in retaliation for aggressive practices used by foreign powers, for example, the United States raised its steel tariffs to 522 percent in response to China dumping steel in the market, and the aim of such actions by foreign countries is to destroy domestic industries to enable them to obtain on market share and facing unchallenged competition. [1]


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