TARIFFS – DETAILED NOTES o Encourage local production
and employment.
Generate Government Revenue
1. Definition
o Tariffs are a source of income
A tariff is a tax, duty, or fee
for governments, especially
imposed by a government on
in developing countries.
imported goods entering a
country. Regulate Imports
It increases the cost of foreign o Control the amount and type
products, making domestic of foreign goods entering the
products more competitive in the country.
local market.
o Manage trade deficits and
Tariffs are one of the primary tools promote balanced trade.
of trade policy used by
Influence Consumer Behavior
governments.
o Encourage the consumption
of locally produced goods
2. Types of Tariffs over imported goods.
1. Specific Tariff o Can discourage imports of
certain harmful or non-
o A fixed fee per unit of
essential items.
imported goods.
o Example: $5 per kilogram of
imported rice. 4. Effects of Tariffs
o Easy to calculate but does Economic Effects
not adjust for price changes
Prices
in the global market.
o Increase the price of
2. Ad Valorem Tariff
imported goods, making
o Percentage of the import them less attractive to
value of the goods. consumers.
o Example: 10% of the value of Domestic Producers
imported electronics.
o May benefit from reduced
o Flexible as it rises with the competition and increased
value of the product. sales.
3. Compound Tariff o Can invest more in
production and innovation.
o Combination of specific
and ad valorem tariffs. Consumers
o Example: $2 per item plus o Face higher prices and fewer
5% of its value. choices for imported
products.
o Provides both revenue and
protection against cheap Trade Balance
imports.
o Can reduce imports,
potentially improving the
country’s trade balance.
3. Purposes and Objectives
Global Trade Effects
Protect Domestic Industries
May lead to retaliatory tariffs by
o Shield local manufacturers
other countries.
from foreign competition.
Can spark trade disputes or Free Trade Agreements (FTA)
impact diplomatic relations.
o Countries in an FTA may
May disrupt global supply remove tariffs on each
chains if major exporters are other’s goods.
targeted.
o Example: Mexico and Canada
enjoy tariff-free electronics
exports to the U.S. under
5. Examples of Tariffs in Practice
USMCA.
United States
Tariff Exposure Composite
o Imposed tariffs on steel and Index (TECI)
aluminum to protect
o Developed by PIDS to
domestic producers.
measure how vulnerable
o 19% tariff on certain countries are to U.S. tariffs.
Philippine exports under the
o Takes into account: average
new reciprocal tariff regime
tariffs, exemption coverage,
(with some exemptions).
strategic exposure, U.S.
o 20% tariff on electronics from export dependence, and
Vietnam and 30% on severity of impact.
electronics from China.
Philippines
7. Advantages of Tariffs
o Electronics/semiconductors
Protect local industries and jobs.
exports to the U.S. may be
exempted to protect U.S.- Generate government revenue.
based multinational
Encourage domestic production
companies operating in PH
and self-sufficiency.
(like Texas Instruments,
Analog Devices, and IMI). Can be used strategically in trade
negotiations.
China
o Faces high tariffs (~30%)
on many electronics exported 8. Disadvantages of Tariffs
to the U.S., impacting pricing
Higher costs for consumers.
and competitiveness.
May lead to trade wars or
Vietnam & Malaysia
retaliation.
o Exports of electronics to the
Can reduce efficiency by protecting
U.S. are subject to tariffs
less competitive domestic
(Vietnam ~20%, Malaysia
industries.
~19%), affecting the cost for
U.S. importers. May hurt international relationships
and global supply chains.
6. Related Concepts
SUMMARY
Trade Balance
Tariffs are taxes on imports that
o Difference between a
influence prices, trade flows, and
country’s exports and
economic relationships.
imports.
They can protect domestic
o Tariffs can reduce imports,
industries but may also lead to
which may improve the trade
higher costs and international trade
balance.
tensions.
Modern examples include U.S.
tariffs on China, Vietnam, and
Malaysia, with exemptions for
strategic sectors like Philippine
electronics.
Tools like the TECI help
policymakers understand exposure
and plan strategies to maximize
benefits while minimizing risks.