Regulating international trade—trade policies and their effects
Policymakers can use a wide variety of instruments to restrict or alter trade flows. Because a tax influences market outcomes, it has redistributive effects, meaning that it transfers purchasing power among consumers, producers, and the government. If part of the tax is backward shifted and part is forward shifted, then both the consumer and the producer share in paying the tax. The imposition of a tax causes the supply of the particular good or service to decrease. Although the decrease in supply generates an increase in the market price, it typically does not rise by the full amount of the tax in most situations. There are three basic kinds of tariffs. A specific tariff is a fixed tariff amount per unit imported. An ad valorem tariff is calculated as a percent of the value of the good or service imported. A combination tariff is a blend of a specific tariff and an ad valorem tariff.