TARIFF BARRIERS: CHARACTERISTICS, TYPES AND EXAMPLES - ECONOMY - 2025

The tariff barriers are defined as all the provisions to limit international trade. A tariff barrier seeks to restrict the commercial scope between international borders, as different taxes are imposed on the import and export of products by an economic zone or a country.

These taxes are also known as tariffs. Tariff barriers are intended to put an obstacle to many world transactions, since they increase the price of the product to buy or sell, depending on its volume of sale and its characteristics.

With exports, the State seeks to create income by collecting taxes. While a country is more internationalized and open, it will export more and, therefore, the country will have more profits. In addition, it allows to regulate its activity and limits the export of goods that are considered transcendental for the health of the economy of a nation.

With imports, the government tries to defend its national industries from foreign competition, considerably increasing the price of goods that come from abroad in order to favor domestic manufacturing.

characteristics

Tariff barriers are an instrument for budgetary and fiscal control and, at the same time, generate international regulation. They make it possible to know if a service or product is being audited and, therefore, to verify whether or not it is legal.

However, in many countries these barriers become a brake on the entry of foreign investment and, therefore, for the arrival of new capital to the country for its economic development.

When Adam Smith published his book The Wealth of Nations in 1776, international trade was dominated by extremely restrictive import tariffs.

Their influence has helped build a consensus among economists that lowering trade barriers fosters economic growth; That consensus was particularly strong among Western economists in the second half of the 20th century, leading to a general decline in tariffs around the world.

Data on import tariffs

These data are compiled by the World Bank and the World Trade Organization. Tariff analysis can be tricky as different rates may apply for different products from different trading partners.

The countries with the highest import tariffs are the Bahamas, Gabon, Chad, and Bermuda. Their rates applied on average range from 15.4% to 18.6%. The less developed nations tend to have the highest trade barriers.

Developed countries are generally less restrictive: for example, 27 of the 28 members of the European Union apply a tariff rate of 1.6% (Iceland's is even lower, 0.7%).

However, there are still many tariffs, even among the countries with greater market freedom. For example, Japan favors its rice producers with high import tariffs, and the United States does the same with its peanut producers.

Tariff war

A tariff war is an economic battle between two countries in which country A increases tax rates on exports from country B, and then country B - in retaliation - increases taxes on exports from country A.

The increase in the tax rate is designed to hurt the other country economically, as tariffs discourage people from buying products from those external sources by increasing the total cost of those products.

One reason a country can incite a tariff war is because it is unhappy with some of the political decisions of its trading partners. He hopes that, by putting enough economic pressure on the country, he can force a change in the behavior of the opposing government.

Types

While most economists agree that tariff barriers ultimately create less than optimal economic conditions, governments often require them for a variety of reasons, ranging from protecting a fledgling industry to engaging in war. trade with another country.

There are three types of tariffs, also called import payments, that can be implemented as protective measures.

Governments collect all these forms of tariffs to increase the price of imported products and thus exceed or match the prices of domestic suppliers.

Scientific fees

They are taxes to increase the price of products to final consumers.

Risk fees

They are implemented when less efficient industries are in danger of closing due to their inability to compete on prices.

Retaliatory tariffs

Used to replicate the charging of excessive fees by trading partners.

Examples in Mexico

In recent years, Mexico has distinguished itself by having the tendency to eliminate and reduce tariff barriers. It only keeps them in some specific cases, as it is one of the countries with the most free trade agreements (including with the European Union), in addition to being a member of the World Trade Organization.

For example, there are no tariff barriers for products made in the United States that meet the requirements of the rules of origin of the North American Free Trade Agreement.

General Import Tax

Imported products must pay the General Import Tax. This tax corresponds to a tariff portion and can be of different types, according to the product:

Ad-valorem

Expressed as a percentage of the value of the merchandise in customs.

Specific

Expressed in monetary form by the unit of measure.

Mixed

When it comes to a mixture of the previous two.

Sector Promotion Programs

Mexico has implemented Sector Promotion Programs, which reduce tariffs from zero to five percent on a wide range of important inputs needed by the country's manufacturing export sector.

Twenty different sectors of industry are included in this program and it concerns about 16,000 articles. In order to participate, Mexican companies must be registered in this program.

Exemption on electric vehicles

In order to reduce the emission of greenhouse gases, since 2017 the Mexican government has exempted imported electric vehicles from paying tariffs. Previously, a 15% duty was paid on trucks and cars with electric motors

Harmful Food Tax

A Special Tax on Production and Services (IEPS) is applied on the importation of alcoholic beverages and cigarettes.

In 2013 the IEPS was expanded to include a tax on soft drinks, high-calorie foods, and junk food. This tax can vary from 25 to 160%, depending on the product.

Articles of interest

No duty barriers.

References

1. Investopedia (2018). Which countries have the highest tariffs? Taken from: investopedia.com.
2. Investopedia (2018). Tariff war. Taken from: investopedia.com.
3. S. Commercial Service (2017). Mexico - Trade Barriers. US Department of Commerce. Taken from: export.gov.
4. S. Commercial Service (2017). Mexico - Prohibited & Restricted Imports. US Department of Commerce. Taken from: export.gov.
5. S. Commercial Service (2017). Mexico - Import Tariffs. US Department of Commerce. Taken from: export.gov.
6. Roberto Vázquez Burguillo (2018). Customs barriers. Economipedia. Taken from: economipedia.com.