International Trade and Exchange Rate Essay

Tariffs Tariffs are the taxes placed on goods that cross a national border. The most common type of tariff is an import tariff which is a tax on goods that are imported. There are various impacts that import tariffs have on nations. Smaller nations are effects in several ways which all trickle down to the consumer. The consumer in the country that receives the imports and has to pay the tariff will begin to see an increase in the cost of goods; which could mean that many people have to now go without. This effect could cause a decrease on the well-being of a nation’s consumers. If fewer consumers are able to purchase the goods, the goods will then begin to decrease in value which could cause a decrease in output, jobs, and profits. Larger nations produce and import/export more goods which means more revenue for the government. The government then decides how, on whom, and on what the revenue is spent on. It is unknown exactly who benefits from the tariff revenue a government receives, but it most likely is spent on programs that benefit those inside the country. Larger nations see a decrease in surplus in the goods market which is helpful because there are generally no leftovers. Larger countries also benefit more from tariffs than smaller countries because larger countries are less likely to have a problem with paying the import tax. Tariffs have both good and bad consequences, and are far better than having an import quota on goods. Import quotas are trade restrictions on quantities of goods that can be imported. Governments prefer using a tariff as opposed to an import quota for several reasons. The first reason is that tariffs generate revenue for the government. The United States is said to collect around twenty billion dollars each year in tariffs. The tariffs are added in small amounts such as 10 and 20% of the overall cost of the goods. By adding up all of the tariffs on all of the goods that are imported, the outcome of revenue can become staggeringly high. This is why tariffs are good for some countries and horrible for others. The second reason is that import quotas can lead to administrative corruption. Placing a quota on a particular good gives custom’s officials great power. This power can often persuade the countries/corporations who really need the goods to give incentives so that the customs officials may show favoritism to them. Quotas always leave someone without; therefore, it is better to allow more products with a small tax on them than to place limits on the quantity. The third reason is that import quotas are more likely to cause smuggling of goods. If a country or corporation isn’t favored by the customs officials and are left without, it could force them to smuggle the good into their country illegally. Of course, if tariffs are raised so high that countries can’t afford to buy the goods, smuggling could also occur, but that is less likely to happen. Every nation has a dollar exchange rate and that rate plays an important role on imports and exports. An exchange rate is the price of one country’s currency as it is expressed in another country’s currency. The exchange rate allows one country’s money to be converted into another country’s money which allows for the purchasing and trading of goods between countries. Exchange rates are constantly changing and it is best to exchange while the rate is balanced as closely as possible or leaning more toward your favor. The exchange rate is extremely important and a weakened U.S. dollar can affect cost and demand in several ways. A weak dollar increases the demand for exported goods which could also increase domestic revenues. A weak dollar also increases the price of imported goods which allows local goods to compete with domestic goods. The weakened dollar is good for the U.S., exporters, and even farmers; however, if the dollar continues to weaken over a long period of time, it can be bad for everyone in the U.S. Sometimes, the cost of imported

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