Wednesday, March 30, 2011

Tariff System: Why the Poor suffer

"The United States was born as a low-tariff nation" BUT "The U.S. has far more trade barriers than most American politicians choose to admit" (authors unknown).

The picture seems to be nice - the effective US tariff rate is 1.6 percent. For expensive consumer goods such as cars rates are historically low and are continuing to reduce. But it's absolutely different story for the light consumer goods. Tariffs on these products are still at levels other industries last saw in the 60s and 70s. So, actually US has two tariff systems - for industrial high-tech goods an average rate is 0.8 percent and for cheap consumer goods it is 10.5.
It doesn't affect only consumers, but also the producers of those cheap goods. Such countries like Bangladesh, Cambodia, Nepal, Mongolia, for which clothes make up 90 percent of all exports to the United States, face average tariff rates of 14.6 percent - almost 10 times the world average (Edward Gresser, 2002).
It does not seem to be fair at all to me, especially when governments always talk about fighting poverty and supporting developing countries.

Below is an interesting proof of how the US government collects money from the poor people, thus "encouraging people not to be poor":




 I've made some research about Russian tariff system. Although, the average tariff is higher than American, the system itself seems to be fairer talking about the poor. For example, the tariff on shoes is 15% no matter if they made of rubber or leather, the tariff on all non-alcoholic beverages is the same, the difference in cotton and silk tariff rate is not as significant as American (referring to http://www.russian-customs-tariff.com/). Of course, in order to compare and draw more accurate conclusions, more tariff rates need to be studied.

I've also found another very interesting article by Edward Gresser "America's Hidden Tax on the Poor" (2002), which explains everything in greater details and gives some possible suggestions and recommendations, which I find to be reasonable. He suggests to treat tariffs as taxes, which is unlikely to happen because this way the government will lose a source of revenue;  to adopt a special relief for poor countries, but this would not help fighting poverty within the country, and tariff elimination through Doha Round of WTO sessions because not only USA has problems with tariff system.

After all above mentioned it is obvious that the country needs to consider a tariff reform along with continuing negotiations on tariff elimination on international level.

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