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On the Removal of Tariffs

Tariff is a tax imposed on imported products. There are two kinds of tariffs levied on imports, one is the specific tariffs which is a fixed charge for each unit of imported good, the is other is the ad valorem tariffs which are levied as a proportion of the value of the imported good. Both way, there are those who suffer and who gains from the imposition of tariffs on steel and it is the customers that suffers while the government and the domestic producers’ gains. Explain the unintended effects of the steel tariffs

Although some major domestic manufacturers benefits from the imposition of tariffs on imported steel products, it also has unintended effects on other domestic manufactures. Among the unintended effects of the tariffs levied on imported products is the increase of price of their inputs into production. The consequence of these unintended effects has been political pressure to grant exemptions from the tariffs otherwise, prices of those relying on imported steel will not be competitive, and it will results to reduced overall efficiency of the world economy.

Another unintended effect is the increased cost that that will be endured by the consumer. Even if the steel firms get exemptions or subsidy to be more competitive, it is the consumers that will absorb the costs of subsidies. What roles did the World Trade Organization (WTO) and European Union (EU) play in the removal of the United States steel tariffs? The WTO and the European Union played a crucial role in the removal of the United State steel tariffs in view of their acceptance of the “infant industry” argument.

The infant industry arguments suggest that an industry should be protected until it can develop and be viable and competitive internationally. The intention of this infant industry argument is to prevent foreign competitors from preventing domestic industry from developing. To achieve this, the government must recognize its responsibility to help infant industries to overcome barriers to entry into industries where foreign firms have an initial advantage.

Because of this policies adapted by the WTO and European Union, imposition of tariffs on steel posses more responsibilities and consequences both in government and in the consumers. Imposing tariffs on imported steel products may bring some financial benefit for the government, but its consequences may be greater in view of the requirements set by WTO and the EU on important product under infant industry argument. In your opinion, how would Smith, Ricardo, and Hecksher-Ohlin (see Chapter 5) view the actions of the Bush Administration with regard to the steel tariffs?

From the time of Smith, Recardo, and Hecksher-Ohlin up to the great depression, there was strong emphasis on protectionism. Although some countries actively support free trade, the United States created important tariffs on foreign goods which made the depression of the 1930s deepened because other nations took similar steps. In my opinion therefore, Smith, Recardo, and Hecksher –Ohlin would not be happy of the actions of the Bush administration to remove the steel tariffs. Perhaps they would argue that there are other ways to deal with the problem without sacrificing the domestic producers.

The government could levy to congress to come up with a bill that may address the problem regarding the possible consequences on the foreign and domestic firms importing raw steel as well as to safeguard the consumers from the possible increased prices. I believed that Smith, Ricardo, and Hecksher-Ohlin would love to see domestic steel companies developed and established themselves under the protection of the tariffs on steel because they can afford to make competitive pricing. Reference The Political Economy of Internal Trade

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