A tariff or duty tax is a tax x placed on imports, usually calculated as a percent of the price charged for the goods by the foreign suppliers. Tariffs can therefore be used as a source of revenue for the governmnets, but aremainy used as a form of protection against foreign competition. By raising prices of imported goods relative to those of the domesticlaly produced goods, it is encouraging domestic consumers to by domestic prod cuts rather than foriegn products. The main effects of protection of industry are: Because the tarrifs are placed on cheaper foreign goods are consumers are forced to pay higher prices for products, which results in a lower standard of living in the community. Incomes are redisturbrited away from consumers to entrepreneurs in the protected industries and to government protection will mean a higher level of domestic production and a higher level of employment.
The main arguments for protection of industry are: "infant industry", defense or national self-suffi ency, protection of home industry, diversification, favorable balance of trade, and protection of employment. The "Infant industry" argument: This argument assumes that a domestic industry could gain a competitive advantage if it could only get started without the pressure of foreign competition. Once the industry becomes established the government would than phase out there protection. This line of debate is only valid if the resources are more productive in their new use then they would be if the industry had not been started.
From this, eventually the industry must be able to supply its products to the market at a price lower then that of the imported product. The problem is to quickly identify those so called infant industry that are going to able to grow, with help of temporary protection, into productive enterprises that will have a competitive advantage. In practice this argument is destroyed, as those "infant industries" that are protected usually fai to grow out of the infant stage, and are not able to face foreign competition. Defence of national Self-Sufficiecney: This is where a government chooses to protect those industries it believes will be crucial in time of warfare. The result in problem from this form of protection is that it stops the standard of living of the country risisngquiet as quickly as it would other wise have done, and therefore is not often supported by citizens. Protection of Home Industry: This argument is most prevelant at the moment, and it involve government andentreprenurs appealing to the public patriotism to buy "Australian made " products, no matter the price the public has to pay or the quality of the product purchase.
As the consumer is usually having to pay a higher price for the domestic goods, buying "Australian made' decreases there standard of living. If the home industry needs protection form lower cost overseas industries, the question asked how efficient the home industries are. In many cases the answer is not very, and it must be considered if there sources must be consisdered if the resources could be used more productively. If they could, then there is no bases for this argument. Protection of Employment: The argument provided by those who follow this line of thought is that importing goods amounts to the exporting of jobs. Originally there is a lose of jobs of some of the workers in the less protected industry as there is no longer a market for there skills.
These workers may then need retraining toga in employment in the work force. Australia sometime provides adjustment assistance to the workers in firms that suffer from increased imports resulting form government actions that lower trade barriers. The reason behind this support is that the removal of trade barriers leads to increased trade, and since the whole nation realises gains from the increased trade, some of the gains can be used to compensate those workers who suffer loss during the transitional period. As long as the economy is operating a capacity, unemployment resulting from increased foreign competition should only be transitional. Any long term unemployment problems should be blamed on fiscal and monetary polices another domestic polices for dealing with unemployment.
Diversification: Is the situation resulting from a country having a competitive advantage in only one or two products. The international trade of this country may be subject to wide fluctuation in the prices it receives because of the changes in world supply and demand. They are consisdered " all there eggs in the one basket" as they are extremely vulnerable to changing economic conditions and future trends and technological discoveries. Favourable balance of trade: There are two main lines of analysis against this argument: all countries cannot have a favourable balance of trade, becuase if some have a favourable balance some must have a unfavourable balance. It is then selfish policy which seeks protection at the expense of other countries and which will reduce total international trade. a favourable balance of trade causes the country to accumulate foreign exchange balances which reduce the standard of living as they are only useful that they can provide us with goods and services that can satisfy more and more wants.
Over the last few decades there has been a general concensus of opi on thatthe reduction of tariffs is a good idea. This change of attitude and action against protection has come about because of: the gradual change in the belief that high protection was in the national interest; cost to the community of levels of protection afforded to manufacturing industries; and Australia's pursuit of more free world trade in agricultural products, which means they had to change their own manufacturing policy. No matter what the result of the forthcoming election, there will be a reduction in governments protection of industry that both parties tariff policies involve the gradual fading ou of Australia's over-protection of industries. Labor's exact plans are to reduce tarrifs for most industries to 5% by 1996, wiht clothing, textiles and footwear at 25% and automotive rates at! 5% bythe year 2000, with no possible changes to legislated program until 1996. The liberal goal is for all industries by the year 2000 to be between 0 and 5% tariffs, with no review 1996.
With these policies in mind, if the protection industries are to survive when tariffs are dropped they must become more efficient and gain a competitive advantage so as to successfully meet foreign industries head oni n free international trade. Hooper, Nacelle. "Who's best for Business " Business Review Weekly, February 12. EconomicsWaud, Hocking, Maxwell and BonniciHarper & Rowe.
Sydney 1986 Microeconomics of MarketsTisdell C. A John Wiley & Sons. Brisbane 1982 Our Economic Environment Gallagher and Burkhardt McGraw-Hill, 5 th edition Sydney 1988.