Governments use tariffs to manage the politics of international economic integration. By targeting tariff rates to individual products, governments navigate competing demands on trade policy. But existing theories miss an important aspect of tariffs: they also need to be enforced at border crossings, which for some governments creates substantial challenges. Faced with high tariffs, firms can mis classify their products into categories that face lower tariffs. Pointing to the potential for such tariff evasion, I discuss the difficulties for governments in using tariffs for political gain and I derive implications for trade politics. Constraints on the ability of governments to enforce tariffs, in the form of low bureaucratic capacity, emerge as an institutional determinant of trade policy. Disaggregated tariff data provide empirical evidence for this argument. The article identifies an institutional constraint on trade politics, contributes to growing literatures on firm heterogeneity and on illicit cross-border economic activity, and speaks to debates on trade policy and government revenue.
There is a greater frequency of relatively high tariffs on the developed countries' imports from the developing countries than on their overall manufactured imports. Furthermore, although the extent of tariff escalation has been reduced, processing activities in the developing countries continue to suffer discrimination as tariffs are generally nil on unprocessed goods but rise with the degree of fabrication on processed goods. Since the effective rate of tariff on the output exceeds the nominal rate whenever the latter is higher than the tariff on the inputs, relatively low output tariffs may give rise to high effective rates of protection on the processing activity.
If you were to apply these concepts to a developed and a developing country, which ones would you choose? Explain why?
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For a developed country, having lower tariffs is actually benefitial. This is because there are now at a stage of high mass consumption. The people tend to be more consumeristic, On the other hand, a developing country can impose higher tariff to protect its indigenous industries.
A developed coutry may be technologically advanced. So it will be usually producing very advanced goods. If no tariffs are imposed are such goods, This would destroy the small scale industries in an underdeveloped or a developimg country. SInce the developed countries have a historical economic leverage on the developing countries, we need to ensure an additional buffer for the developing countries.
The developing countries need to be protected until they are ready to have a fair just competition.
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