For many it would skyrocket the cost of living, increase smuggling and endanger free trade agreements.
Faced with the controversy caused by President Gustavo Petro’s proposal to raise tariffs to offset the rise in interest rates with the purpose of protecting national industry, the country’s economic sectors are divided in their opinions. While for some, this measure would hit producers, for others it could favor national production over foreign competition.
According to Pedro Sarmientosleisure Director of Taxes and Legal Affairs of Crowe Colombia, a professional audit, legal and tax advice firm for the business sector, “the truth is that if tariffs (taxes) were established or increased for products imported into Colombia, it is likely that this would have a negative impact on the pocket Colombians, who would have to pay more for them. However, looking at it objectively, the measure could also have positive effects on the national economy, as it could stimulate the growth of the national industry, and even job creation.
Faced with this possible decision of the national government, Sarmiento assures, “it is essential that any determination regarding the increase in tariffs be based on a careful analysis of the possible effects, both for and against for the economy and the well-being of the population.” in general. In the same way, other trade protection measures could be considered that could be less restrictive and more effective in protecting national production and promoting economic growth.
For the Crowe Colombia expert, however, it is important to put these pros and cons on the table, which he analyzes as follows:
Negative effects
Price increase. If tariffs on imported products are increased, it is likely that prices to the final consumer will increase. This is because tariffs are a tax that is applied to the value of the imported product, which increases its cost and, consequently, the final price that the consumer pays.
Reduced trade. Higher tariffs may reduce international trade and competition. If the prices of imported products become higher, consumers may prefer to buy domestic products, which could reduce importation and access to a wider range of products.
job loss. If tariffs on imported products are increased, some domestic companies may see their demand decrease, which could result in job losses within the sector.
positive effects
Protection of the national industry. Higher tariffs can protect domestic production from foreign competition. This can stimulate the growth of the national industry and job creation.
Foreign exchange earnings. Higher tariffs can increase government revenue by taxing imports. These revenues can be used to finance economic and social development programs.
Reduction of the trade deficit. Higher tariffs can reduce the trade deficit, since domestic products can become more competitive compared to imported products.
On the other hand, Pedro Sarmiento assures that in this analysis it is important to take into account the issue of free trade agreements of Colombia with other countries, since they establish certain provisions and commitments that must be respected, and whose non-compliance may have negative legal and commercial consequences for the country and for its international commercial relations.
For example, many treaties may include “most favored nation” clauses, which state that if Colombia grants a country preferential tariff treatment on a given product, it must also grant that same treatment to all other countries with which it has trade. free trade agreements. This means that if, on the other hand, tariffs are increased on products imported from a country with which Colombia has a free trade agreement, tariffs may have to be increased on products imported from all other countries with which Colombia has a free trade agreement. those who have agreements of this type.
Likewise, it is important to take into account that a measure to increase or charge new tariffs could encourage smuggling, an illegal activity that is very detrimental to the national economy, since it can generate unfair competition for national companies.
If the increases are significant, and/or smuggling is very high, it is possible that a general increase in prices in the economy will be generated, which could affect the purchasing power of consumers and generate an inflationary spiral.