Tariff and Import Duties: Economic Effects on Industries in Australia

This report examines the impact of tariffs and import duties on industries and the Australian economy. It discusses the functions and roles of tariffs, including revenue generation, protection of domestic industries, and prevention of trade distortion. The report analyzes the costs and benefits of tariffs for consumers, producers, and the government, considering their effects on employment and economic welfare. It also explores the reasons for imposing and eliminating tariffs, focusing on Australia's import tariffs, relevant laws, and the benefits of Free Trade Agreements (FTAs). Statistical analysis and data on Australian import prices are included to support the findings. The report concludes with a summary of the key impacts and considerations regarding tariffs and import duties in the Australian context. Desklib provides access to similar solved assignments and past papers for students.

Research Paper
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Table of Contents
Introduction................................................................................................................................3
Tariff and Import duties-Affects on the industries and the economies cost and benefits of a
tariff............................................................................................................................................4
Tariff..........................................................................................................................................4
Functions and Role of Tariffs....................................................................................................4
Costs and Benefits of Tariffs......................................................................................................4
Effects of Tariff among the Producers.......................................................................................5
Effects and Impact of Tariffs on the Government.....................................................................6
Impacts of Tariff on the Employment........................................................................................6
Pros and Cons of Tariffs............................................................................................................7
Reasons or causes of imposing tariffs........................................................................................8
Reasons or Cause for eliminating the Tariffs.............................................................................8
Australia (Import Tariffs)...........................................................................................................9
Laws relating to the import and export of Australia..................................................................9
Benefits of FTAs......................................................................................................................10
Statistical Analysis...................................................................................................................11
Australian Import Prices..........................................................................................................12
Conclusion................................................................................................................................13
References................................................................................................................................14
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Title - Tariff and Import duties-Affects on the industries and the economies cost and
benefits of a tariff
Introduction
In this reported study, the tariff, as well as import duties, have been discussed in relevance to
the economy of Australia. The tariff and import duties greatly impact on the various
industries and also on the economic costs and benefits of the country as well. Most of the
companies and industries at the time of international trade suffer due to unfavorable tariff and
duties. The international trade leads to increment in the number of products and services
available to the domestic consumers from which they can choose a variety of goods.
Moreover, it also decreases the cost of goods sold as the competition increases because of the
international trade. The import and export of goods referred to as in which the domestic
industries have to ship their products to the abroad (Radcliffe, 2018).
The reported study contains the various facts, figures, and stats that reflect the impact of
import duties and the tariff on the consumers and also on various industries. The tariff is
defined as the tax which has to be paid by the company or industries to the government or
associated body against the trading of goods or services (Radcliffe, 2018). Australia is a
grown and a developed country which contains certain policies, procedures, and regulations
regarding the duties and tax which is imposed on the industries accordingly. The report
highlights all the factors and elements which is concerning to the economic costs and
benefits. In addition to this, the trade barriers have also been discussed in the following report
study. Furthermore, the report comprises of various pros and cons relating to the trading and
tariffs. In the end of the reported study, the meaningful conclusion is also drawn so as to
reach among certain findings (Fouda, 2012).
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Tariff
The tariff refers to as the most common form or type of trade barrier as it is the tax which has
been imposed on the export or import of goods. The tariff can also be known by the other
names such as “Import duties”. This duty or tax is charged at the time when the goods or
products are imported to the respective economy (Fouda, 2012).
Functions and Role of Tariffs
The tariffs consist of the three primary functions which are: serving as the source of revenue
or income, protecting of the domestic industries and thereafter, preventing from the trade
distortion (Anderson & Nelgen, 2012). The income generated from the tariff leads to the
major source of revenue for the government. The major funding’s of government incurred
from the tax amounts and the duties which they imposed on the industries. When reviewed
from the past year's data it is observed that the revenue generation is the major focus for
applying of the tariff plans in the economy. However, in regards to the current era, this aim is
far away and considers the economic development as well as planning of the systematic
domestic codes which has led to reducing the impact of the tariff as the major source of
revenue in the developed countries.
The tariffs also referred to as the policy tool which has been used to protect the domestic
industries. The domestic industries are highly affected by the changes taking place in the
business condition and the market demand due to the imported goods. The tax levied on the
industries protects the welfare of the domestic industries as the prices of imported goods
become higher as compared to that of domestically produced once (Anderson & Nelgen,
2012). Tariffs are placed with the motive of keeping a competitive advantage for the
domestic industries and disadvantage for the imported goods.
Costs and Benefits of Tariffs
There is the various impact of tariff on the consumers which influences on their amount of
goods demanded and supply of the industries. There is an adverse relationship in between the
domestic goods demanded and price of the imported goods. For instance, if the price of the
imported goods increased then the demand for the domestic products increases and vice
versa. The population of the country prefers to buy those products and services which are
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having the high quality and are available at the affordable prices (Nogues, et. al., 2015). The
below figure has been presented which shows the relationship of price and quantity
demanded in regards to the impact of tariffs on the consumers.
Figure 1: The effect of tariffs on consumers
Source: (Pettinger, 2017)
From the above graphical representation, it has been analysed that the increase in the prices
leads to decrease in the quantity demanded by the consumers. This is so because of the law of
demand in which the consumers purchase such products which are easily accessible and are
at lower costs. At the increase in price element from the point P1 to P2 the quantity demand
at the point Q4 has declined to the point Q3. Hence, there is an adverse relationship in Bothe
of the elements. The reason behind this is that the tariff increases of the costs of imports
which impacts on leading to the higher prices and thereby, the decline among the consumer
surplus.
Effects of Tariff among the Producers
The domestic producers are the once which are highly benefited from the introduction of
tariffs. It is so because the goods of the domestic producers will be more competitive when
compared to the imported goods (Nogues, et. al., 2015). For example – In the economy of
Europe the agricultural industry or the farmers are benefiting from the tariffs as they lead to
protecting them towards cheaper competition. On the contrary, it is also observed that the
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restrictions and limitations on the competition lead to the making of the encouragement of
inefficiency among the firms. It is beneficial in the short-run on the other hand, in the long-
run the domestic companies may not take it seriously and impacts on the necessary
improvements taking place within the organisation.
Effects and Impact of Tariffs on the Government
The introduction and formulation of tariff policy will increase the revenues for the
government. However, it will contribute to a smaller percentage out of the total tax revenue
system. For example – In case if the amount of tariff is too high in Australia then the
industries will emphasis on reducing the number of imported goods and which impacts on
lowering the tariff revenue for the Australian government. There are certain other impacts of
tariffs also such as tariff leads to a decline in the disposable income as well as a net loss to the
economic welfare (Dyster & Meredith, 2012). Higher the tariff amount the lower will be the
revenue generated and a falling in the consumer demand.
Impacts of Tariff on the Employment
Figure 2: The effect of tariffs on employment
Source: (Pettinger, 2017)
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On the basis of the above statistical presentation, it is evident that the tariff is amounting to
P2-P1, which leads to increase in the prices of goods for the consumers and thereby, fall in
the demand made by the consumer. The net loss in relation to the consumer surplus areas
equals to the addition of 1+2+3+4 quadrant. Most of the times, it is argued that the tariff leads
to the creation of more job opportunities for the people. But this has been argued by various
economists which states that higher tariff does not create jobs and employment opportunities
for the individuals (Dyster & Meredith, 2012).
Pros and Cons of Tariffs
The tabular representation has been made below in order to state the various advantages and
disadvantages of higher tariffs within the economy of Australia. The table is presented below:
Advantages Disadvantages
 Due to the higher tariffs the domestic
industries experiences of the uncompetitive
within the marketplace across worldwide
(Meti, 2017).
 There is an increase in the number of
these domestic industries. As the competition
level decreases the demand for the domestic
products increases and thereby, the number of
workers also gets increased.
 Because of the high tariffs, the
government tax revenue also gets enhanced
even though by a small amount only.
 The decline in the ratio or figure of
foreign exporters.
 A burden is emphasised on the
domestic consumers which are paying of the
higher prices for goods and products.
 The domestic industries have to
experience lower consumer demand because
the consumers are spending more amounts of
funds on the imported goods and products.
 The domestic exporters are
experiencing the retaliatory tariffs (Meti,
2017).
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Reasons or causes of imposing tariffs
There are several reasons due to which the tariffs must be imposed by the government on the
business industries. The reasons are mentioned below:
Raising of the revenue amount – For example – if the country has not been producing of the
oil the levying a taxation amount over the oil imports will increase the amount of profitability
and revenues for the government as the individuals or consumers has no alternative option
available with them. The consumers have to pay off the import duties and charged which are
added to the actual cost of the product (Austrade, 2018).
Protectionism – The major reason for imposing the taxes and tariff is making of the domestic
industries more competitive and modest in the manufacturing of the goods and services.
Environmental Impact – The tariffs are applied to such products or goods which are having of
the negative impact due to the externalities. In order to protect the business or industries from
the external environmental factors, the tariffs are levied on the industries (Austrade, 2018).
Reasons or Cause for eliminating the Tariffs
Each and every aspect has two sides one is a positive side and another one is a negative side.
The implication of tariffs on the industries has some of the reasons for removing it (Pettinger,
2017). The reasons for removing the tariffs or import duties are as follows:
 Leading to the trade liberalisation – It includes of removing the trade barriers such as
tariffs or import duties and others so that the industries can trade from one economy to
another without any restriction.
 It creates lower prices for the customers as well. It is so because whenever the goods
are imported the industries and companies do not have to pay any specific charge against that
and can offer the goods at lower prices to the end-users.
 It promotes the specialisation and expertise goods and services. In which the
consumers can get off the specialised quality products across worldwide.
 The eradication of tariffs creates and leads to benefiting the economy and reaching to
the economies of scale (Pettinger, 2017).
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Australia (Import Tariffs)
According to the views and thoughts of the news published in the article Export.gov (2017),
there is various information is available in regards to the average tariff charges as well as
types which the U.S industries or firms must be aware of at the time of exporting to the
Australian market. Certain trade agreements have been made by the government in case of
imported goods and products from the U.S market. The U.S market has been considered as an
example which is trading with the Australian economy.
The U.S. - Australia Free Trade Agreement (AUSFTA) – In respect of the free trade
agreement existing in between the Australia and U.S which has come into presence in the
year 2005. AUSFTA has eliminated the imports or tariff duties over 99% of the U.S
producing industries as well as those producing the consumer goods. Moreover, there is a
100% of eradication of tariffs in the U.S produced agricultural products. It has led to creating
the more exporting opportunities for U.S farmers and manufacturers. The tariffs in regards to
the non-U.S economies are subject to an average of 5% or less than that on the various
products such as motor vehicles, footwear, clothing and many others (Export.gov, 2017).
Laws relating to the import and export of Australia
Australia contains strong and powerful trade tie-ups with the rest of world. Due to the
competitive location, Australia has become a major spot for the supplier market in the Asia-
Pacific region. There are numerous policies which have been framed by the Australian
government in order to grow, develop and sustain the economy in the respective region.
These policies also assist the Australian organisations and businesses to engage in the
international trade (Australian Government, 2018). The regulations, protocols, and others also
do exist which help in protecting the domestic industries, individual consumer and the
business environment against the harmful or dangerous products that have been imported
from the overseas. Furthermore, the concept and convention of import and export consist of
the tariffs and duties, trade agreements and many others. The each and every aspect has been
shown below:
Tariffs and Duties – Australia has made certain commitments relating to the tariffs and its
quotas under the WTO (World Trade Organisation) which exhibits over the export subsidies
as well as providing of the domestic guidance for the agricultural products. The goods or
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products that are imported from Australia are classified comprehensively (Australian
Government, 2018).
Free Trade Agreements – Australia has six Free Trade Agreements (FTAs) with many of
the other countries which are in force. In addition to this, eight of them are under the
negotiation process. The free trade agreements provide an access to the countries for trading
legally and are committed to liberalising open access to the market of goods and services
among each other. Each and every team involved in the FTAs are committed to accessing the
investment and market capturing of the other economy without any of the tariff charges.
FTAs are the global or international treaties which are reducing of barriers among the trade
and investment proposals (Australian Government, 2018).
Benefits of FTAs
 It is helpful in better access to the Australian market
 This helps in boosting of the competitive position in relation to the Australian exports.
 It leads to impacting of the low cost of imports for the Australian organisations and
consumers also.
 With the help of free trade agreement, there is more openness in the two-way process
of investments (Australian Government, 2018).
Import Regulations – The business organisations which are operating within Australia are
looking forward to importing the goods and services from the overseas as it reflects as the
part of their activities (Business, 2017). The business organisation does an import of the
goods or products from the other countries must aware of the rules, regulations, permits,
duties, taxes, procedures and others which are related to the importing agreement. The
companies or industries which do not adopt any of such regulations or laws are seized by the
government or Australian Department of Immigration and Border Protection. For getting of
licensing and import permission the industries have to follow of various steps and
requirements necessary to be followed (Business, 2017).
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Statistical Analysis
The trend which shows the changes taking place in the imports of goods and services in
Australia has been shown below. In the past years to the current context, there is an
increasing and decreasing trend observed from the year 1959 to the year 2004. The number of
imported goods in the year 2003-04 among Australia is estimated to be $133 billion. There is
a steady and slow increase in the number of goods and services imported into the economy of
Australia. This shows that the residents of Australia have made the maximum number of
expenditure for the purchase of imported goods and products. From the below graphical
presentation, it is seen that in the year 2000 there was the maximum record of the gross
national expenditure within the country. Afterwards, the trends have been decreased and
observed in this figure.
Figure 3: Import penetration ratio
Source: (Australian Government, 2018)
Australian Import Prices
From the below stats shows the import prices which has been existing in the Australian
economy starting from the year 2015 to the year 2017. It seems from the stats that in the last
quarter of 2017 the import prices in Australian economy are very less as compared to the
other previous years. However, in the year 2015, the prices of the import goods raised to 108
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index points. From its first quarter to last quarter there is a tremendous increase in import
prices.
Figure 4: Australia Import Prices
Source: (Trading Economics, 2018)
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Conclusion
As per the analysis of the above study, it is assessed that the investigation of tariffs and other
import duties is significant to consider for the Australian economy. This is so because the
revenue from the taxes or tariffs contributes to the overall tax system of the government and
welcomes of the more job opportunity for the individuals. On the same hand, the increase in
the tariffs amount leads to protecting and safeguarding of the industries as the demand for the
domestic goods increases. It is also observed from the study, that there are various impacts
and effects of tariffs on the government, consumers, producers, and industries. However, in
the recent era and among the developed country like Australia, there are various other
revenue generation methods adopted by the government instead of the tariffs. The tariffs and
import duties contain both the positive as well as negative impacts. It is so because the effect
of tariffs is majorly depended upon the elasticity of consumer demand.
From the analysis of the report, it is evaluated that many of the times the government raise
the amount of tariff for safeguarding and protecting the small domestic trader. In leading to
gain the competitive advantage from one another the small scale industries are the once
which becomes pissed off and is impacted by the imported goods. As these goods are the
closest substitute for one another and having the high quality and reasonable prices. Because
of this, the individuals do not like to buy the domestically produced goods. The tariff policy
differs according to the economy to economy and also industry to industry as well. It is also
revealed that one industry is benefiting from the tariffs and on the same time another industry
is greatly affected because of this.
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References
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 Meti. (2017). Chapter 4 TARIFFS. [Online] Meti. Available at:
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