Why is tax on imports known as “Trade barrier”?

Trade barriers are the policies or procedures a nation adopts to control its exports and imports in order to manage its international trade. One example of a trade barrier is an import tax or tariff, which the government imposes on imported goods to control foreign trade. 

Why Is Tax On Imports Known As a “Trade Barrier”?

One of the most commonly used trade restrictions by governments worldwide is the import tax. It is an indirect tax that is charged on goods that are imported as soon as they enter the country’s borders. The tax is normally based on the value of the goods, and it increases the price of imported goods, making them less appealing to customers. The government can do this to safeguard domestic businesses from foreign conditions, which could result in job losses and unstable economic conditions.

Import taxes are referred to be trade barriers because the government can impose limitations on the import of goods. As a result by raising the import tariff on commodity X, less flow of that commodity enters the country which decreases trade with the country as a whole. It is therefore called a trade barrier.

After independence, the Indian government imposed barriers to international investment and trade. This was because of these reasons :

a. India was a developing nation at the time, therefore the government imposed trade restrictions to help in the country’s development. Only necessities—like machinery, fuel, and other things required to foster economic development could be imported.

b. Trade barriers were thought to be crucial for defending domestic producers from foreign competition.

c. In India, industries were just being started in the 1950s and 1960s. These industries would not have been able to grow if there were no trade barriers at the time.

To maintain fair competition between imported goods and those goods made in India, trade barriers were required. Domestic goods would not have been able to survive on the market without them. India needed to produce goods within the border in order to achieve its five-year plans’ goal of being self-sufficient. Nevertheless, the country was importing essential products from developed countries like machinery and gasoline. Self-reliance was critical for India’s economy to thrive.

India just liberalised its economy in the early 1990s in order to boost competition and raise production standards across the country.

The stated reason for imposing a tax on imports is accurate since import taxes can be used by the government to increase or decrease international trade. The government can discourage imports and encourage home production by raising the import tariff, which will improve local jobs and economic growth. On the other hand, the government can promote imports by reducing the import tax, which would boost foreign trade and strengthen global connections.

In conclusion, the reason adequately explains the assertion, and both the assertion and the reason are true. Import taxes can be used by the government as a trade barrier to control international trade and protect the domestic manufacturing sector.

Frequently Asked Questions on Trade Barriers

Q 1. What are the four different kinds of trade barriers?

Answer : Subsidies, standardisation, tariffs, quotas, and licences are the most common types of trade barriers used by governments seeking a protectionist policy or as a form of retaliatory trade barriers.

Q 2. What effect do tariff tax barriers have?

Answer : When a country sets a tariff, foreign exporters find it more difficult to sell their goods. As their exports diminish, companies may lower their pricing in order to stop their sales from falling drastically. 

Q 3. What is an international trade tax barrier?

Answer : Tariffs or import taxes are the most common type of trade barrier. Tariffs boost the price of imported goods in comparison to domestic goods (goods produced in the country). Another common trade barriers is a government subsidy to a certain domestic industry. Subsidies make those comodities less expensive to produce than they would be in international markets.

Q 4. What exactly are non-tariff barriers?

Answer: Non-tariff barriers refer to the direct limitation on the quantity of goods that can be imported into a country at any given time. In other words, quotas limit the quantity of a certain commodity imported into a country during a specific time period.

Q 5. Why does India have such a high import tax?

Answer : Import taxes in India are high due to the country’s policy of encouraging domestic/homegrown industries. This is known as import substitution industrialisation (ISI), a trade policy that focuses on replacing imported goods with domestic manufacturing and production.