Protectionism leads to a closed market while trade liberalization leads to a free trade open market. Governments use tariffs to try and regulate the level of services between countries. Ford has undertaken several efforts to avoid paying tariffs on their imported wagons. To start with, not all goods that come into the United States of America are subjected to tariffs. Seventy percent of imports are free of the duty while only the other thirty percent are dutiable (Carbaugh). The wagon components are made in the country and shipped outside the country to another nation that has lower labor costs. The company takes advantage of the offshore assembly provision tariff act that was established in 1930. The act provides a favorable treatment that the company has taken advantage of because when the components are sent to other components for assembly, they are converted into finished goods. The act helps the company cut costs as the cost of the components made in the United States is not included in the value of the imported wagon that is dutiable. The only value that is subjected to duties is the value added. This makes it cheaper for Ford Company to import its wagons.
In case, there was the absence of the OAP Act, the full cost of the wagon would be subjected to the tariffs. For instance, if the ten percent and a wagon cost $3000, it means that Ford will have to pay $300 for it. Hence, by the time the wagon is off the port, it would cost over $3300. Manufacturing the wagon components and then exporting them to other countries that provide cheap assembly labor and then importing the wagons back is a strategy employed by Ford to avoid paying high tariffs.
Work cited
Carbaugh, Robert J. International Economics. Cambridge, Mass.: Winthrop Publishers, 2014. Print.
