How tariff for non-trade purposes works out?

Usually tariff is imposed by the importing nation on the goods & services of exporting country for trade purposes. Today we observe quite a few nations barge on tariff as a geoeconomics weapon for non-trade purposes. Neither this helps the imposer of the tariff nor harms the target. Instead it worsens the already bad situation. Few highlights:

Domestic job creation is often touted as the primary reason for imposing tariffs against an exporter who has nothing to do with the subject matter per se. Creating employment opportunities within a state is a vital matter for the government taking into consideration of the sustenance of domestic economic policies. Theoretically, primary duty of a state is to work towards the ideal state of full employment. In practise this is just a utopia. Classical economists like J M Keynes were too occupied with this concept that they ignored not only macroeconomics implications within and geoeconomics features without.

National security is next in the priority list of non-trade purposes. Ironically it is the most developed nations in the globe who often cite this fact when announcing tariff imposition. There is no linkage between national security and traded items whatsoever. If any imports are deemed as prejudicial for security these should be banned as such and not being subjected to crap talk of impinging on security.

Pure jealousy, as I see is the un-announced reason for juggling with tariff regime. When the state observes an exporter is doing well in a particular sector whereas the domestic counterpart is failing to be a match for the importing nation, it resorts to tariff as a panacea. In electric vehicles China has grown leap and bound to the chagrin of USA as the latter not only increases tariff rate of these vehicles but also brings out quantum based restrictions.

Supply chain management is novel battle cry. Many of the western countries have fear gripping over them regarding increased volume of imports from China, its frequency and seamless operations by the Chinese exporters to get the goods across the destination faster. Indeed, this helps the exporter to optimize supply chain management to work in his favour as well as to his counterpart to lesser extent. The tragedy is the chance of any other competitor entering into the fray is marginal that includes domestic manufacturers as well.

Export–import trade harnesses the trading benefits accruing to both exporter and importer but not at the same quantum or degree. Hence, bargaining power is lessened or eroded especially in case of importing nation who feels exporter placing importing nation at a disadvantageous position. This may arise due to several factors including cheap labour, improved break-even ratio, repeat orders and not to mention efficiency related to production, transportation and meeting of delivery schedu

Finally, it is all about politics. It never stops anywhere. The contemporary world is driven more by geopolitics than by geoeconomics. For western countries like America a three pronged geopolitics of leveraging, bargaining and arm-twisting is cloned up to battle in the field of geoeconomics. Either you play ball with us or get lost is the message delivered by the West to fast developing trading nations such as China, Vietnam and even India.

At present the issue in geoeconomics is simple as well as subtle. Who can bell the cat that is America the Titan!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist