How does economic integration affect tariff barriers?

Economic integration typically reduces or eliminates tariff barriers among member countries.

Economic integration is a process where countries agree to reduce or eliminate barriers to trade, and often includes the reduction or elimination of tariff barriers. Tariffs are taxes imposed on imported goods and services, used to protect domestic industries from foreign competition. When countries enter into economic integration agreements, such as free trade agreements, customs unions, or common markets, they often agree to reduce or eliminate these tariffs.

The reduction or elimination of tariff barriers can have several effects. Firstly, it can lead to an increase in trade between member countries. Without tariffs, goods and services can move more freely between countries, leading to an increase in the volume of trade. This can benefit consumers by providing them with a greater variety of goods and services at lower prices.

Secondly, it can lead to increased competition. Without tariff barriers, domestic industries may face increased competition from foreign firms. This can lead to increased efficiency and innovation as firms strive to maintain their market share. However, it can also lead to job losses in industries that are unable to compete.

Thirdly, economic integration can lead to trade creation and trade diversion. Trade creation occurs when economic integration leads to the replacement of domestic production with imports from other member countries. Trade diversion, on the other hand, occurs when imports are diverted from non-member countries to member countries due to the elimination of tariff barriers.

Lastly, the reduction or elimination of tariff barriers can lead to increased economic interdependence between member countries. This can have both positive and negative effects. On the positive side, increased interdependence can lead to greater economic stability and cooperation. On the negative side, it can also make countries more vulnerable to economic shocks in other member countries.

In conclusion, economic integration can have a significant impact on tariff barriers, leading to increased trade, competition, trade creation and diversion, and economic interdependence. However, the effects can vary depending on the specific circumstances of the countries involved.