Tariff barrier is an import duty tariff that is imposed higher than usual which aims to limit the entry of certain imported goods.
In the export and import process, when entrepreneurs want to send their goods from one country to be marketed in another country, a tax levy will be imposed by the local government, known as import duty rates. This rate is usually a percentage of the selling price of the goods and will be different for each type of goods. For example, the tariff for rice, which is a staple food, will definitely be cheaper than the rate for a Ferrari, which is a luxury item.
From this import tariff, the government will get a fairly decent amount of income while on the other hand it will make imported goods more expensive than local goods if local goods can be sold at factory prices but the selling value of imported goods must be added to the tariff value, for example goods that are sold at factory prices. the same quality for $1 , but because this is an imported item that is subject to a 10% tariff, the selling value will be $1.1.
Example of Tariff Barrier
United States of America
LG and Samsung washing machines originating from South Korea increased their import tariffs by 50% of the product value because the United States Department of Commerce assessed that these washing machines were sold below market prices and also far exceeded local production units. This incident was initiated by a lawsuit from a local washing machine manufacturing company with the Whirpool brand which was later granted.
China
The Chinese government imposes import tariffs of up to 40% on cigarette products, alcoholic beverages and cosmetics from manufacturers in any country in the world. Cigarettes are subject to high tariffs for health reasons, while cosmetics and alcoholic beverages are carried out to protect local industries which are their segment of production.
Free Trade Agreements
The imposition of a tariff barrier at a glance is indeed beneficial for state revenues, for local industries that can be more competitive but on the other hand, of course, will face resistance from opposing countries. If their originating goods are subject to very high tariffs, our goods will also be subject to high tariffs which will eventually trigger a trade war.
As a result of the trade war, it is clear that export-oriented local industries will find it difficult to market their goods abroad. As a result, it is clear that the price of their goods will become more expensive, but the consequence is that these goods will become unattractive to buyers, which in the end will actually reduce the number of sales. In the end, the two countries that apply the tariff barrier will both lose, neither will be the winner.
Therefore, now a so-called Free Trade Agreement (FTA) is formed, which is an agreement between countries regarding the imposition of import duties where the value should not be too high or if possible without tariffs at all. FTA is the impact of the concept of free trade where the buying and selling process should not be confined by the state but must be able to cross geographical boundaries because it will open a wider market which actually helps the industry to market more of its products.
There are FTA schemes in the form of bilateral relations such as FTAs between Indonesia and China or regional scales such as ASEAN FTAs.
Consequences of Tariff Barriers
If a country is deemed to have implemented a tariff barrier, the opposing country can file a lawsuit with the world trade organization or the WTO, provided that both countries are registered as WTO members. If it is later proven that the action is a tariff barrier after going through a court and appeal process that could take years, the participating country will be asked to reduce its tariff and if it is not complied with then an economic embargo will be imposed, aka restrictions on transactions both exports and imports from member countries. other WTOs.
If one of the countries is not a member of the WTO, the aggrieved country can request an embargo process directly without the need for courts and appeals. Meanwhile, if both of them are not members of the WTO, the usual step is to carry out a tariff war as a recompense.
The policy is related to international trade policy. We know that a country cannot stand alone but needs help from other countries so that international trade occurs. Each government has its own international trade policy according to the country’s needs. These policies include various actions taken by the government related to macro financial indicators such as the current account or commonly referred to as the current account balance, which specializes in exports and imports.
Barrier tariff itself is a tariff which is a regulation issued by the government directly or indirectly where the policy will affect the structure in the process of smooth business and ultimately encourage economic growth in general. Now, the import policy is divided into two, namely the tariff barrier policy and the non-tariff barrier policy. The term relates to the policies applied to existing import activities. Tariff itself refers to a direct levy on import duties imposed on imported goods entering the territory of another country to be used for consumption or production. Barrier itself refers to the notion of limits or obstacles imposed by the government regarding increasing tariffs on imports of goods that will enter.
This barrier tariff is divided into three groups based on the amount of tariff applied, namely low import duty tariffs where the tariff ranges from 0 to 5%, the second tariff is Diana’s moderate tariff of 5 to 20%, and high tariffs which ranges above 20%. The imposition of this type of tariff is based on its function where low tariffs are applied to strategic staple goods, moderate tariffs are applied to semi-finished goods for production needs, and high tariffs are applied to luxury goods. The application is based on the important value of an item, if the item is important, the tariff will be smaller because the state needs it urgently.
Function
The function of the application of the tariff barrier is used based on certain functions such as the regulatory function, budgetary function, democratic function, equalization function, and protection function. But the most important is the function as protection. The state has a function to protect its people from imported goods that are too cheap to the detriment of domestic business actors. To protect against cheap imported goods, the government applies high tariffs so that the imported goods become more expensive than similar products originating from within the country. However, there are negative impacts from the implementation of the tariff, such as an unfavorable view from other countries related to the investment ecosystem in that country.