Government intervention in trade

Abstract

This chapter discusses some aspects of unilateral government intervention in trade. One of the oldest forms of unilateral government intervention in trade is the levying of taxes or duties on imports. In principle, an import tax or import duty can take one of two forms. An ad valorem tariff is stated as a percentage of the value of the specific import good. A specific tariff is stated as a fixed amount per unit imported. With conditions of inflation, ad valorem tariffs benefit the government because tariff revenues automatically increase with rising prices. Specific tariffs benefit importers, because the amount they have to pay as a tariff remains unchanged as long as the physical quantities being imported are constant. In order to combine aspects of both tariffs, use is sometimes made of composite tariffs. Other forms of unilateral intervention such as quotas and subsidies are also analyzed in this chapter. A quota limits the quantity of the commodity concerned that can be imported into a country during a specific period. Unlike a tariff, a quota limits the importation of a commodity directly.