UNDERSTANDING TARIFFS: HOW THEY SHAPE GLOBAL TRADE AND YOUR WALLET

The possible application of tariffs on 25% of products by the United States to Mexico has alarmed most of the population. If you still have doubts about tariffs, read on.

What are tariffs?

Tariffs are taxes applied to imported or exported products when they cross the border.

The objectives of tariffs allow them to be classified into fiscal tariffs and protectionist tariffs. Fiscal tariffs have the objective of collecting revenue for the State, while the latter seek to make foreign products more expensive at the time of import so that they do not represent a threat to the domestic market.

They are considered as part of the tariff barriers in international trade, and you can find them in the National Foreign Trade Information Service (SNICE by its acronym in Spanish). Each merchandise is assigned a tariff classification consisting of 8 digits, a number with which you can know the taxes, restrictions or entry facilities in other markets for each merchandise. We recommend that always seek the advice of a customs broker for the correct classification of your merchandise in order to comply with all the requirements or restrictions at the time of importing or exporting.

Types of tariffs

The most common are tariffs applicable to imports. Among them are:

Ad-valorem: Consists of a percentage applicable to the value of the merchandise; i.e., 5% tariff for plastic products.

Specific: Consists of a specific amount for each product, for example, a tariff of $2.00 is applied per kilogram of imported sugar.

Mixed: It is a combination of both (ad-valorem and specific),where a percentage and a specific amount are imposed, an example is when a 10%tariff plus $1.50 is applied for each liter of imported beer.

Zero: Applies in cases where there is a free trade agreement between two or more countries. In these cases there is a tariff as such, but its rate is zero.

Other tariff barriers also used in foreign trade are classified as follows:

Cupo tariff: This type of tariff establishes limits on what can be imported, and if the limit is exceeded, a certain percentage or quota is applied.

Countervailing duty: These apply to goods that are considered to be affecting domestic production. These may be temporary and are applied in addition to the tariff on the merchandise.

Preferential tariffs: These allow the reduction or in some cases elimination of tariffs on certain products between the two or more countries participating in the trade agreement.

Tariffs applicable to exports are less common, but are used to discourage the exit of goods from the country. They are normally used when the government considers that production is at par or below par.

Advantages and disadvantages

Although for many years it seemed that this tariff barrier would disappear as a result of globalization, the latest trade wars and even the COVID-19 pandemic have put the application of import and export tariffs at the forefront of protection for national industry.

In addition to representing a source of income for the government, among its advantages we can find the protection they provide to the national industry, giving a price advantage to national products, as well as balancing the national balance.

However, the application of this type of barriers has a great impact on the economy of both countries, and also causes the beginning of trade wars, as in the case of China with the United States. Another disadvantage is that it affects the purchasing power of the population and generates inflationary pressures.