Welcome! In our Economics lesson today, we will be treating the topic “Restriction To Trade”. Do have a nice time studying with us!
Lesson Note
Subject: Economics
Topic: Tariffs Or Restriction To Trade
Learning Objectives: By the end of the lesson, the learners should be able to:
- Define the term Tariffs;
- State the reasons for imposition of tariffs or restrictions on international trade;
- State and explain the tools or instruments for trade restriction.
Discussions
Tariffs or Restriction to Trade
The term Tariffs can be defined as taxes or duties imposed on imports and exports by the government of a country. The idea behind tariffs is to restrict the volume of trade or improve the international terms of trade.
Reasons for imposition of tariffs or restriction
The reasons why countries impose tariffs or restrictions on international trade include the following:
i. To protect infant industries: Tariffs are imposed to protect infant industries from undue competition with foreign firms.
ii. Generation of revenue: Tariffs are also imposed to generate revenue for the country. Many countries derive their revenue from import and export duties.
iii. To prevent dumping: Tariffs are imposed to prevent dumping of goods from foreign countries. This is to prevent foreign goods from being sold at prices lower than the home price.
iv. To improve balance of payments deficit: By imposing tarrifs on imported goods, the unfavourable balance of payments can be corrected because importation will be discouraged.
v. Retaliatory measures: This can be used in retaliation against countries which impose taxes on their imports.
vi. Employment generation: Countries impose tariffs to encourage the establishment of local industries or enhance the expansion and growth of existing ones so as to provide job opportunities.
vii. Political motive: Tariffs can be introduced as discriminatory measure against unfriendly countries.
viii. To promote self-sufficiency: Tariffs are also imposed on imported goods to enable a country be self sufficient in production of numerous goods.
ix. To check consumption pattern: If all sorts of goods are allowed to come into the country, the citizens will develop uncontrolled appetite for foreign goods.
x. To protect strategic industries: Tariffs may be used in most cases to protect certain strategic industries.
Tools or instruments of Trade Restriction
Tools or instruments normally used for international trade restriction include the following:
i. Import duties or tariffs: This is a tax imposed on imported goods to reduce the amount of trade.
ii. Foreign exchange control: Trade can be controlled by reducing the foreign exchange available for trade transactions.
iii. Devaluation: By lowering the value of a country’s currency vis-a-vis others, importation becomes costly while export becomes cheaper.
iv. Embargo: This is the prohibition or outright ban placed on some imported goods.
v. Import monopoly: This refers to a situation in which the government of a country takes over the importation of certain of a country takes over the importation of certain goods which are only essential to the country.
vi. Import quota: Import quota restricts imports by imposing a limit on the quantity of goods that can be imported at a particular country.
vii. Preferential duties: In order to either encourage or discourage the importation of certain goods from certain countries, determinate duties are charged on these goods.
viii. Excise duties reduction: This method helps to reduce the prices of locally made goods so as to enable people to patronise them instead of foreign made goods.
ix. Import licence: Import license is a permit that allows an importer to bring a certain quantity of foreign goods into a country and allows him to purchase the foreign currency required to pay for them.
Done studying? See all previous lessons on Economics
Take a quick test for this lesson
- Define the term Tariffs.
- State the reasons for imposition of tariffs or restrictions on international trade.
- State and explain the tools or instruments for trade restriction.
Questions answered correctly? Kudos!!
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