External Sector
Export Duty: When selling abroad costs more
What It Is and How It Works
An export duty is a form of tax imposed by a government on products and services being exported to other nations. The main purpose of imposing the tax is to generate revenue for the government, but it can also be imposed for other purposes such as promoting domestic industries or stabilizing the price of the product in the domestic market. Export duties can influence the price of a product both domestically and internationally because exporters must pay a portion of their earnings when shipping the product.
For example, if the global market price of oil is $70, and there is a 10% export duty charged by an oil-exporting country, the companies will only get $63 per barrel when exported to other countries. Therefore, exporters will prefer selling the oil within their country at any price above $63, reducing exports. Under such circumstances, domestic prices may reduce, benefiting buyers in the home country, but to the detriment of lesser good being exported.
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The Policy’s Impact
Export duties can help local consumers by lowering prices on certain goods, as the tax makes exporting less attractive. This can increase the availability of goods domestically, especially when those goods are essential or widely used. For instance, when Argentina applied export duties on wheat, it helped lower the local price, benefiting consumers and increasing their disposable income.
On the other hand, export duties can also discourage international trade, as they reduce the money exporters can earn by selling abroad. This can be especially damaging for countries that rely heavily on exports to boost their economies. Additionally, while the local market might benefit, this could decrease foreign currency reserves, potentially increasing pressure on exchange rates.
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Stakeholders and Political Implications
Export duties directly affect exporting companies, which face reduced profits when they sell abroad. These companies may adjust by selling more domestically, which could hurt their international reputation or limit their overall market and profitability. This decrease in potential profits might cause companies to remove investment and jeopardize economic growth. On the other hand, local consumers benefit from lower prices, and governments can use the extra revenue to fund public services or support domestic industries.
The political implications of export duties are mixed. Some see them as a tool to support local industries and control the prices of key goods. Others argue that they can lead to inefficiencies, discourage trade, and harm relations with trading partners. Countries that adopt export duties often face debates about whether to increase or decrease the rates, especially when global prices fluctuate.
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Real World Examples
Argentina's Agricultural Export Taxes (2008): In 2008, Argentina introduced fluctuating export duties on agricultural products. When the international price of grains rose, the export tax increased, and when the price fell, so did the tax rate. This led to protests from farmers and rural associations, resulting in one of the country's most significant political conflicts.