A tariff or duty tax is a tax x placedon imports, usually calculated as a
percent of the price charged for the goods by the foreign supliers. Tariffs
can therefore be used as a source of revenue for the governmnets, but are
mainy used as a form of protection against foreign competition. By raising
prices of imported goods relative to those of the domesticlaly produced
goods, it is encouraging domestic consumers to by domestic prodcuts rather
than foriegn products.

The main effects of protection of industry are:

Because the tarrifs are placed on cheaper foreign goods are consumers are
forced to pay higher prices for products, which results in a lower standard
of living in the community.
Incomes are redisturbrited away from consumers to entrepreneurs in the
protected industries and to government protection will mean a higher level
of domestic production and a higher level of employment.

The main arguments for protectuion of industry are: "infant industry",
defense or national self-suffiency, protection of home industry,
diversification, favorable balance of trade, and protection of employment.

The "Infant industry" argument:
This argument assumes that a domestic industry could gain a competitive
advantage if it could only get started without the pressure of foreign
competition. Once the industry becomes established the government would than
phase out there protection.

This line of debate is only valid if the resources are more productive in
their new use then they would be if the industry had not been started. From
this, eventually the industry must be able to supply its products to the
market at a price lower then that of the imported product. 

The problem is to quickly identify those so called infant industry that are
going to able to grow, with help of temporary protection, into productive
enterprises that will have a competitive adavantage. 

In practice this argument is destroyed, as those "infant industries" that
are protected usually fail to grow out of the infant stage, and are not able
to face foreign competitioon.

Defence of national Self-Sufficiecney:

This is where a government chooses to protect those industries it believes
will be crucial in time of warfare. The result in problem from this form of
protection is that it stops the standard of living of the country risisng
quiet as quickly as it would other wise have done, and therefore is not
often supported by citizens.

Protection of Home Industry: 

This argument is most prevelant at the moment, and it involve government and
entreprenurs appealing to the public patriotism to buy "Australian made"
products, no matter the price the public has to pay or the quality of the
product purchase. 
As the consumer is usually having to pay a higher price for the domestic
goods, buying "Australian made' decreases there standard of living. 
If the home industry needs protection form lower cost overseas industries,
the question asked how efficient the home industries are.
In many cases the answer is not very,  and it must be considered if the
resources must be consisdered if the resources could be used more
productively. If they could, then there is no bases for this argument.

Protection of Employment:
The argument provided by those who follow this line of thought is that
importing goods amounts to the exporting of jobs. Originally there is a lose
of jobs of some of the workers in the less protected industry as there is no
longer a market for there skills. These workers may then need retraining to
gain employment in the work force. Australia sometime provides adjustment
assistance to the workers in firms that suffer from increased imports
resulting form government actions that lower trade barriers.
The reason behind this support is that the removal of trade barriers leads
to increased trade, and since the whole nation realises gains from the
increased trade, some of the gains can be used to compensate those workers
who suffer loss during the transitional period.
As long as the economy is operating a capacity, unemployment resulting from
increased foreign competition should only be transitional. Any long term
unemployment problems should be blamed on fiscal and monetary polices and
other domestic polices for dealing with unemployement.

Diversification:
Is the situation resulting from a country having a competiitive advantage in
only one or two products. The international trade of this country may be
subject to wide fluctuation in the prices it receives because of the changes
in world supply and demand. They are consisdered " all there eggs in the one
basket" as they are extremely vulnerable to changing economic conditions and
future trends and technological discoveries.

Favourable balance of trade:

There are two main lines of analysis against this argument:

all countries cannot have a favourable balance of trade, becuase if some
have a  favourable balance some must have a unfavourable balance. It is then
a selfish policy which seeks protection at the expense of other countries
and which will reduce total international trade. 
a favourable balance of trade causes the country to accumulate foreign
exchange balances which reduce the standard of living as they are only
useful that they can provide us with goods and services that can satisfy
more and more wants.

Over the last few decades there has been a general concensus of opion that
the reduction of tarriffs is a good idea. This change of attitude and action
against protection has come about because of:

the gradual change in the belief that high protection was in the national
interest;
cost to the community of levels of protection afforded to manufacturing
industries; and 
Australia's pursuit of more free world trade in agricultural produts, which
means they had to change their own manufacturing poicy. 
No matter what the result of the forthcoming election, there will be a
reduction in governments protction of industry that both parties tariff
policies involve the gradual fading ou of Australia's over-protection of
industries. 
Labor's exact plans are to reduce tarrifs for most industries to 5% by 1996,
wiht clothing, textiles and footwear at 25% and automotive rates at !5% by
the year 2000, with no possible changes to legislated program until 1996. 

The liberal goal is for all industries by the year 2000 to be between 0 and
5% tariffs, with no review 1996.

With these policies in mind, if the protection industries are to survive
when tariffs are dropped they must become more efficient and gain a
competitive advantage so as to successfully meet foreighn industries head on
in free international trade.

Hooper, Narelle. "Who's best for Business" 
Business Review Weekly, February 12.

Economics
Waud, Hocking, Maxwell and Bonnici
Harper & Rowe. Sydney 1986

Microeconomics of Markets
Tisdell C.A 
John Wiley & Sons.Brisbane 1982

Our Economic Environment
Gallagher and Burkhardt
McGraw-Hill, 5th edition Sydney 1988
