Question

You live in a large country and another large country is imposing tariffs on your country's exports. Should your government impose equivalent (or similiar) tariffs on the other country's exports?

Answer 1

Introduction: -

Since 1990's, the governments of most countries understood one simple fact, that if they had to survive, they would have to open up doors for international and foreign trade.

Previously, many countries used protectionist measures to ensure that their products and services were well protected as compared to other countries. This would mean high tariffs on import of foreign goods.

This resulted in global slowdown and lack of foreign exchange in most countries and soon had to be changed. Countries today like the United States, Mexico and Canada deploy modern techniques and methods which allow them to be barrier free through contractual methods. The existence of international organizations such as the World Trade Organization has further helped our case.

Case Specifics: -

In the case, we see that our country is large meaning that multiple resources are being manufactured and sold and another similar large country is imposing high tariffs on our products. A tariff refers to a tax which needs to be paid when a foreign good is imported into the country. This is usually to discourage imports and encourage use of local available alternatives if any.

If a country is self-sufficient and is facing such a situation, then in my opinion it should indeed implement tariffs at similar or even higher rates. This is because countries cannot sell products to those which have unilaterally high rates of tariffs on our own domestic production.

It is important to note that the overall economic progress of the other country also needs to be taken into account for deciding on this. For example, the United States relaxed policies for India even when the country had high tariffs since it was a low-income economy. But since then the development in India has been very high and therefore the United States imposed retrospective tariffs which mean equal taxation depending upon the tariffs charged by the Indian counterpart. This forced India to rethink on the existing tariffs.

Therefore, after giving due consideration on all aspects retrospective taxation is the need of the hour for any country which unilaterally considers implementing high tariffs respectively.

Please feel free to ask your doubts in the comments section if any.