Tariffs increase the price of products, reducing demand and thereby protecting domestic producers from external competition. Each country tends to place higher tariffs on products which are thought to be trade sensitive. Below, we summarise how tariffs can influence your business.
Types of Tariffs
The most common tariff used is the ad valorem, which is levied on a good based on a percentage of that good’s value. For example, a 10% ad valorem tariff can be placed on imported cars. This will be reflected in a 10% increase on the final value of the car. Some countries do this to protect their domestic markets from being undermined by cheaper imports entering their country.
A specific tariff imposes a fixed fee on one unit of an imported good. This tariff can vary according to the type of good imported. For example, a country can place a $10 tariff on imported snacks, but a $500 tariff on each computer imported.
Compound duties require both specific duties and the ad valorem tariff method to calculate costs. Additionally, alternative duties are used when the customs official calculates both the ad valorem and the specific duties and applies the highest price.
Along with these types of duties, imported goods may also attract a processing fee, a value-added tax (VAT) fee, an import processing fee, harbour tax, and other charges. This can have a huge influence on businesses looking to trade internationally as it can increase or decrease the overall cost to the customer.
Hidden Barriers to Trade
Often referred to as “red tape”, hidden barriers involve hidden fees which aren’t technically tariffs. These charges come in the form of things such as quotas, boycotts, licenses, standards and regulations, local content requirements, restrictions on foreign investment, domestic government purchasing policies, exchange controls, and subsidies.
These hidden fees will have an impact on businesses looking to export goods internationally by increasing the cost to both the supplier and the consumer. These types of fees can discourage buyers from purchasing goods internationally, therefore having a negative financial impact on many exporters.