Tariffs, Quotas, and Multinational Companies (27.2)
Chapter 27, Business and The International Economy
Learning Objective: To understand the differences and impacts of tariffs and quotas
When studying business, working in business, or doing business, you need to understand that business activity has impacts on both, the environment and the society. Note that such impacts are both, positive and negative.
The concern from businesses towards the impact on society and environment became specially important in the last few years.
Customers are increasingly aware of business unethical behavior which can lead to bad publicity, lower sales, and profits.
The positive or negative impacts business activity has over other stakeholders are called externalities.
External Benefits are social and environmental benefits brought by business, including:
Job creation, providing income;
Improved infrastructure for its operations operations will also benefit the community;
Technological advancements can benefit other businesses and companies, improving efficiency and reducing waste;
Environmental benefits such as recycling initiatives.
On the other hand...
External Costs are social and environmental costs brought by business, including:
Traffic congestions due to the business construction or operations;
Pollution leading to health risks;
Using up natural resources and future generations may not have access to it;
Loss of land or space for nature or community.
Activity 27.4
FInally, let's now understand the difference between tariffs and quotas, the two ways governments protect their local businesses, local jobs, and local economies!
Tariffs are nothing but taxes to be paid on imported or exported goods:
- Governments choose to increase tariffs on imported goods so that the price of imported goods is higher making it possible for local business to remain competitive as well as to increase government tax income
- Governments might also increase tariffs on exports - specially of essential goods (e.g. food) so that local citizens have enough of it before it's exported.
Quotas, on the other hand, are physical limits on the quantity of the goods that can be imported and exported:
- Quotas serve the same purpose as tariffs: protect local businesses from cheaper imports and control the amount of international trade.
- Why should local businesses be protected?
Jobs;
More options to local customers (competition);
Tax income.
For a country's economy it is obviously better to attract multinational companies to set up their operations locally rather than simply importing goods.
To-Do-List:
Do you think the impacts of business activity on societies is more positive than negative? Justify your answer. [8]
Chapter 27, Business and The International Economy
Comments