Export Tariff Meaning: What You Need to Know

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Export tariffs are taxes that governments impose on goods that are exported from their country. They are a form of protectionism, which means that they aim to protect domestic industries and workers from foreign competition. Export tariffs can have various effects on trade, prices, production, and welfare. In this article, we will explain what export tariffs are, why they are used, what types of export tariffs exist, and what are their advantages and disadvantages.

What are export tariffs?

A tariff is a tax that is levied on a good as it crosses a national border. Tariffs can be applied to both imports and exports, but in this article we will focus on export tariffs. An export tariff is a tax that is charged on a good that is produced in the domestic country and sold abroad. For example, if the US government imposes an export tariff of 10% on wheat, then every ton of wheat that is exported from the US will have to pay $10 to the US government.

Why are export tariffs used?

Export tariffs are one method of protectionism, which is an economic policy that aims to restrict trade in order to benefit domestic producers and consumers. Protectionism can be motivated by various reasons, such as:

To raise revenue for the government: Export tariffs can generate income for the government by taxing the foreign buyers of domestic goods. This can help finance public spending or reduce budget deficits.

To improve the terms of trade: The terms of trade refer to the ratio of export prices to import prices. A higher terms of trade means that a country can buy more imports with its exports. Export tariffs can improve the terms of trade by raising the price of exports relative to imports.

To reduce domestic shortages: Export tariffs can discourage exports and increase domestic supply of certain goods, especially those that are essential or strategic for the domestic economy. This can help prevent or alleviate domestic shortages or price spikes.

To protect domestic industries: Export tariffs can protect domestic industries from foreign competition by making their products more expensive in foreign markets. This can help maintain or increase their market share, profits, employment, and output.

To promote domestic value addition: Export tariffs can encourage domestic producers to process their raw materials into finished products rather than exporting them as they are. This can increase the value added and income generated by the domestic economy.

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What types of export tariffs exist?

Export tariffs can be classified into different types according to their structure or purpose. Some common types of export tariffs are:

Specific tariff: A specific tariff is a fixed amount of tax per unit of exported good. For example, a specific tariff of $10 per ton of wheat means that every ton of wheat exported will have to pay $10 regardless of its price.

Ad valorem tariff: An ad valorem tariff is a percentage of the value or price of the exported good. For example, an ad valorem tariff of 10% on wheat means that every ton of wheat exported will have to pay 10% of its price as tax.

Compound tariff: A compound tariff is a combination of a specific tariff and an ad valorem tariff. For example, a compound tariff of $5 plus 5% on wheat means that every ton of wheat exported will have to pay $5 plus 5% of its price as tax.

Differential tariff: A differential tariff is a tariff that varies according to the destination or origin of the exported good. For example, a differential tariff on wheat may charge higher rates for exports to Europe than to Asia.

Prohibitive tariff: A prohibitive tariff is a tariff that is so high that it effectively bans or prevents exports of a certain good. For example, a prohibitive tariff of 1000% on wheat would make it impossible for any exporter to sell wheat abroad.

What are the advantages and disadvantages of export tariffs?

Export tariffs can have various effects on trade, prices, production, and welfare. Some possible advantages and disadvantages of export tariffs are:

Advantages:

• They can raise revenue for the government, which can be used for public spending or debt reduction.
• They can improve the terms of trade, which can increase the purchasing power and living standards of the domestic economy.
• They can reduce domestic shortages or price spikes, which can benefit domestic consumers and producers.
• They can protect domestic industries from foreign competition, which can support employment, output, innovation, and national security.
• They can promote domestic value addition, which can increase the income and development of the domestic economy.

Disadvantages:

• They can reduce trade volumes, which can lower the gains from trade and specialization for both the domestic and foreign economies.
• They can increase export prices, which can reduce the competitiveness and profitability of domestic exporters and harm their foreign customers.
• They can create trade distortions, which can lead to inefficient allocation of resources and deadweight losses for both the domestic and foreign economies.
• They can invite retaliation, which can trigger trade wars and escalate trade barriers among countries.
• They can create administrative costs, which can increase the complexity and corruption of the trade system.

Export Tariff Meaning

An export tariff is a tax imposed by the government of a country on goods that are exported to other countries. Export tariffs are usually used to protect domestic industries from foreign competition, to raise revenue for the government, or to regulate the trade balance of the country.

Effects of Export Tariffs on Global Demand

Export tariffs affect the global demand for the goods that are subject to them in different ways, depending on the elasticity of demand and supply, the degree of competition, and the availability of substitutes.

• If the demand for the exported good is inelastic, meaning that consumers do not respond much to changes in price, then an export tariff will reduce the quantity exported but increase the total revenue for the exporting country. This is because the exporting country can charge a higher price for its good without losing much sales volume. However, this also means that the consumers in the importing countries will bear most of the burden of the tariff, as they will have to pay more for the same amount of goods.
• If the demand for the exported good is elastic, meaning that consumers are sensitive to changes in price, then an export tariff will reduce both the quantity exported and the total revenue for the exporting country. This is because the exporting country will lose a lot of sales volume as consumers switch to cheaper alternatives or reduce their consumption. In this case, the exporting country will bear most of the burden of the tariff, as it will lose income and market share.
• If the supply of the exported good is inelastic, meaning that producers cannot easily adjust their output to changes in price, then an export tariff will create a surplus of the good in the domestic market, leading to lower prices and profits for domestic producers. This will discourage production and investment in the exporting industry, and may cause unemployment and inefficiency.
• If the supply of the exported good is elastic, meaning that producers can easily adjust their output to changes in price, then an export tariff will not affect the domestic market much, as producers will shift their production to other markets or goods that are not subject to tariffs. This will reduce the negative impact of tariffs on domestic producers, but also reduce the positive impact on government revenue and trade balance.

Examples of Export Tariffs

Export tariffs are not very common in international trade, as they tend to hurt both the exporting and importing countries. However, some examples of export tariffs that have been used or proposed in recent years are:

• China imposed export tariffs on rare earth metals, which are essential for many high-tech products, in order to conserve its natural resources and protect its domestic industries from foreign competition. However, this also provoked complaints and lawsuits from other countries that rely on these metals, such as Japan and the United States.
• The United States considered imposing export tariffs on liquefied natural gas (LNG), which is a major source of energy for many countries, in order to reduce its trade deficit and increase its energy security. However, this also faced opposition from domestic producers and consumers of LNG, who argued that export tariffs would reduce their profits and competitiveness, and harm their relations with foreign customers.
• The European Union proposed imposing export tariffs on carbon-intensive goods, such as steel and cement, in order to reduce its greenhouse gas emissions and encourage other countries to adopt similar measures. However, this also raised concerns about violating international trade rules and triggering trade wars with other countries that have lower environmental standards.

References:

https://core.ac.uk/download/pdf/6958854.pdf

https://core.ac.uk/download/pdf/6958854.pdf

https://web.archive.org/web/20120915114121/http://siteresources.worldbank.org/AFRICAEXT/Resources/AFR_Growth_Advance_Edition.pdf

https://web.archive.org/web/20210308192131/https://www.cepal.org/prensa/noticias/comunicados/8/7598/chang.pdf

http://fordschool.umich.edu/rsie/workingpapers/Papers476-500/r489.pdf

https://www.britannica.com/money/topic/tariff
https://www.economicsdiscussion.net/tariffs/tariffs-meaning-and-types-international-trade-economics/30413
https://www.bbc.com/news/business-11664736
https://www.forbes.com/sites/kenrapoza/2019/01/28/trump-may-want-to-tax-us-lng-exports/
https://www.euractiv.com/section/climate-environment/news/eu-carbon-border-tax-will-be-compatible-with-wto-rules-says-canfin/

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