If all significant trade barriers were unilaterally removed on foreign products, U.S. welfare — as defined by public and private consumption — would increase by approximately $3.7 billion annually. Additionally, U.S. gross domestic product would rise by $1.6 billion, according to a 2007 study by the United States International Trade Commission.

The report estimates that U.S. exports and imports both would expand by 0.6 percent. In turn, approximately 60,000 workers would move from contracting to expanding sectors, 68 percent of which would come from the textile and apparel industries, the report says.

The State of Tariff Barriers

U.S. tariffs levied on imports of foreign products originally were established to provide revenue for the federal government, predating income or property taxes. Today, however, tariffs are viewed and used differently.

In effect, tariffs increase the price of imports, discourage their demand, and insulate domestic producers, to a degree, from foreign competition. As a result, each country places higher tariffs on goods determined to be import sensitive.

How much revenue do U.S. tariffs generate? The Progressive Policy Institute, a Washington, D.C. think tank, estimates that U.S. tariffs bring in slightly more than $25 billion annually. By contrast, U.S. income tax likely will raise $1.2 trillion this year.

Most of the $25 billion is derived from imports of necessities and inexpensive consumer goods, such as clothes, $9 billion; shoes, $2 billion; inexpensive household goods, $2 billion; and food, mostly cheese, butter, orange juice and canned tuna, $600 million. Combined, these basics constitute approximately 10 percent of imports but generate about 60 percent of tariff revenue, affecting poor families to a much greater extent than affluent ones.

Overall, the average U.S. tariff rate only was 1.4 percent in 2005, down from 1.6 percent in 2002. This, however, does not reflect non-tariff barriers that in some industries are considerable. According to Consumers for World Trade, a Washington, D.C. think tank, a $45 imported sweater includes a tariff and a 'quota cost' resulting from a government-imposed limit on such imports "that represent quite a large chunk of the $45 you paid for the sweater."

Developed and Developing Country Interests Differ

According to the World Bank, industrial countries are less sensitive to manufactured imports, and consequently, maintain low tariff levels on manufactured goods. However, due to their high sensitivity to agricultural imports, higher tariff levels are applied on agricultural goods. In fact, the average tariff protection on agricultural goods is nine times higher than on manufactured goods.

In The Spotlight

On average, developing countries’ applied tariffs on industrial products are three to four times as high as those of industrial countries’. But their tariff levels on agricultural products are even higher.

Various Types of Tariffs

The most common form of duty or tariff is the ad valorem: a tax assessed on merchandise value. In many countries, ad valorem taxes are applied to the value of merchandise, plus the cost of insurance and freight.

Specific duties are those charged by weight, volume, length, or any other unit (e.g., charging 10 cents per square yard on fabric). Compound duties call for both an ad valorem and a specific duty on the same product. Alternative duties are those where the custom official calculates the ad valorem duty and the specific duty and applies whichever is higher.

In addition, a processing fee and a value-added tax (VAT) may be assessed on top of the duties, plus an import processing fee, harbor tax and other taxes.

The Rising Use of Non-Tariff Barriers

Unlike tariffs, non-tariff barriers are not easily quantifiable and are often hidden. Sometimes referred to as “red tape,” they typically include quotas, local content requirements and subsidies, or are disguised as legitimate licenses, standards and regulations, foreign investment restrictions, domestic government purchasing policies, and exchange controls.

In many sectors, environmental, labor, competitive policy, and investment issues are increasingly used in an abusive manner to discourage imports. And at a time when it appears that foreign government subsidies for industry are decreasing, assistance by other means may be increasing.

For example, in a sampling of approximately 200 overseas competitive projects tracked during an eight-year period, it was estimated that U.S. firms lost approximately half of the projects due in part to foreign government pressure — a hidden and non-quantifiable barrier to trade.

Reducing Trade Barriers

Every international business executive understands the need to know the final cost of goods exported or imported. But this essential task can become complex when the cost of goods sold is boosted by confusing tariffs and red tape.

Unfortunately, reducing tariff and non-tariff barriers is a difficult task. Why? Job losses resulting from imports are difficult for legislators to communicate, even though international trade results in many more job gains than losses. Additionally, the fact that job losses, which tend to be concentrated and often make newspaper headlines while job gains tend to go unreported, contribute to a lack of understanding of global trade realities.

This is unfortunate since world gains from eliminating existing global trade barriers are in the hundreds of billion annually with approximately one-third of these gains accruing to developing countries, the World Bank reports. This represents more than twice the annual flow of aid developing countries receive.

This article appeared July 2007. (CM)
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, competitive strategies and the latest economic trends. He also is CEO of World Trade Center BN, chair of the Upstate New York District Export Council, and founder of The Manzella Report and Manzella Trade Communications Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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