7 Reasons Why Export Tariffs Are Bad for Your Business
Export tariffs are taxes imposed by a government on goods that are exported to another country. They are usually intended to protect domestic industries, raise revenue, or achieve some political or strategic goals. However, export tariffs can also have negative consequences for your business, especially if you are a small or medium-sized enterprise (SME) that relies on foreign markets. Here are seven reasons why export tariffs are bad for your business:
1. Export tariffs reduce your competitiveness
When you export your goods, you have to pay the tariff to the government of the destination country. This increases your costs and reduces your profit margin. You may have to raise your prices to cover the tariff, which makes your products less attractive to foreign customers. Alternatively, you may have to lower your prices to maintain your market share, which reduces your profitability.
2. Export tariffs invite retaliation
When a country imposes export tariffs on certain goods, it may trigger a trade war with other countries that are affected by the tariffs. The other countries may respond by imposing their own tariffs on the goods imported from the first country, or by taking other measures that restrict trade. This can escalate into a vicious cycle of tit-for-tat actions that harm both sides.
3. Export tariffs disrupt supply chains
Many businesses today operate in global value chains, where they source inputs from different countries and sell outputs to different markets. Export tariffs can disrupt these supply chains by increasing the costs and uncertainties of cross-border trade. You may have to find alternative suppliers or customers, which can be costly and time-consuming. You may also face delays or disruptions in the delivery of your goods, which can affect your reputation and customer satisfaction.
4. Export tariffs reduce innovation and productivity
Exporting your goods exposes you to foreign competition and customer preferences, which can stimulate you to improve your products and processes. Export tariffs can reduce this incentive by making it harder or less profitable for you to export. You may lose access to new technologies, ideas, and best practices that are available in foreign markets. You may also lose economies of scale and scope that come from serving a larger and more diverse customer base.
5. Export tariffs harm the environment
Export tariffs can distort the allocation of resources and create inefficiencies in production and consumption. They can encourage overproduction of goods that are subject to tariffs, and underproduction of goods that are not. They can also discourage the use of cleaner and more efficient technologies that are available in foreign markets. This can result in more pollution, waste, and greenhouse gas emissions.
6. Export tariffs hurt consumers and workers
Export tariffs can increase the prices of imported goods that consumers buy, and reduce the variety and quality of goods that they can choose from. This can lower their welfare and purchasing power. Export tariffs can also affect workers by reducing their employment opportunities and wages. Workers who are employed in export-oriented sectors may lose their jobs or face lower incomes due to reduced demand for their products. Workers who are employed in import-competing sectors may benefit from higher prices and profits, but this may be offset by higher costs of living and lower productivity growth.
7. Export tariffs undermine international cooperation and peace
Export tariffs can erode the trust and goodwill that exist between trading partners, and create tensions and conflicts over trade issues. They can also undermine the rules-based multilateral trading system that has been established under the World Trade Organization (WTO) and other regional agreements. This system aims to promote free and fair trade among countries, and to resolve trade disputes peacefully and effectively.
As you can see, export tariffs are not only bad for your business, but also for the economy, society, and environment as a whole. They can create more problems than they solve, and harm both yourself and others in the long run. Therefore, you should avoid exporting your goods to countries that impose high export tariffs, or lobby your government to negotiate lower or zero tariffs with them.
The Impact of Export Tariffs on Global Demand
Export tariffs are taxes imposed by a country on its own exports, usually to protect domestic industries or to raise revenue. Export tariffs can have various effects on global demand, depending on the elasticity of demand and supply, the degree of competition, and the availability of substitutes.
One possible effect of export tariffs is to reduce global demand for the exported good. This can happen when the export tariff increases the price of the exported good in the foreign market, making it less competitive and attractive to foreign consumers. The higher price also reduces the quantity supplied by domestic producers, as they face lower profits and incentives to export. This effect is more likely when the demand and supply for the exported good are relatively elastic, meaning that they respond significantly to changes in price. For example, if a country imposes an export tariff on wheat, which has many substitutes and competitors in the global market, the global demand for wheat from that country will likely decrease.
Another possible effect of export tariffs is to increase global demand for the exported good. This can happen when the export tariff creates a scarcity effect, making the exported good more valuable and desirable to foreign consumers. The higher price also increases the quantity supplied by domestic producers, as they anticipate higher profits and incentives to export. This effect is more likely when the demand and supply for the exported good are relatively inelastic, meaning that they respond little to changes in price. For example, if a country imposes an export tariff on diamonds, which have few substitutes and competitors in the global market, the global demand for diamonds from that country will likely increase.
A third possible effect of export tariffs is to have no significant impact on global demand for the exported good. This can happen when the export tariff is small or offset by other factors, such as exchange rate fluctuations, transportation costs, or quality differences. The price and quantity of the exported good in the foreign market may not change much, or may change in opposite directions, resulting in a negligible net effect on global demand. For example, if a country imposes an export tariff on cars, which have varying features and preferences in different markets, the global demand for cars from that country may not change much.
References:
https://core.ac.uk/download/pdf/6958854.pdf
https://core.ac.uk/download/pdf/6958854.pdf
http://fordschool.umich.edu/rsie/workingpapers/Papers476-500/r489.pdf
http://drodrik.scholar.harvard.edu/files/dani-rodrik/files/after-neoliberalism-what.pdf
http://siteresources.worldbank.org/AFRICAEXT/Resources/AFR_Growth_Advance_Edition.pdf
http://drodrik.scholar.harvard.edu/files/dani-rodrik/files/after-neoliberalism-what.pdf
https://wits.worldbank.org/countrysnapshot/en/USA/textview
https://www.investopedia.com/terms/e/export-tariffs.asp
https://www.weforum.org/agenda/2018/07/the-economic-impact-of-a-trade-war/
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