Amidst supply chain concerns and geopolitical tension, some economies have taken action toward localization. Most companies are bringing manufacturing back home, and many governments have increased tariffs.
What does Tariff mean?
A tariff is a tax or duty paid on a particular class of imported goods. Tariffs can be beneficial since they are a source of government revenue which helps prevent product “dumping” especially when exporters price products abroad for less than they are worth in their home country. A tariff can help keep local products competitively priced by adding a tax to imported goods.
However, taxes on imported goods can also have drawbacks since they are a form of trade protectionism, that can lower economic growth and productivity. Actually, one long-term study found that a 3.6% increase in the tariff rate led to a 0.4% decline in GDP growth five years later.
The Number of Harmful Tariffs by Economy
A harmful tariff is any tariff that discriminates against foreign commercial interests and it excludes those taken under an uncontested higher motive, such as sanctions by the UN Security Council.
Below, is a highlight of the number of tariffs in force for select economies covered in the 2022 Sustainable Trade Index.
|Economy||Number of Harmful Tariffs in Force|
|Papua New Guinea||1|
From the table above it is clear that the U.S. has the most tariffs, partly driven by the China/U.S. trade war that began in 2018. Some Chinese products including auto parts, furniture, and semiconductors were subject to a 25% tariff.
In late 2022, U.S. imports of heavily taxed products from China were 22% below pre-trade war levels. On the other hand, U.S. imports of Chinese products which are not subject to a tariff were 50% higher.
At that time, China retaliated with its own tariffs against U.S. products. However, the country still has one-sixth of the harmful tariffs that the U.S. has in force. In the last few decades, China’s accession to the World Trade Organization and reduced tariff rate contributed to it becoming the largest trading partner in the world.
Last on the table, is Hong Kong which has a free trade policy. It is the only economy in the index which has no tariffs. The economy of this country is highly dependent on trade and it was the sixth-largest trading entity in goods in 2021.
The sustainability of Tariffs and Trade
Tariffs are a complex issue that governments need to consider its benefits and drawbacks. Amid the Sustainable Trade Index, there is a wide variety in the number of tariffs in force. The Sustainable Trade Index measures 30 economies’ ability to trade in a way that balances economic growth, environmental protection, and societal development.
To learn more visit the Sustainable Trade Index landing page
This article first appeared on VisualCapitalist.com