Are tariffs on good in the long term? India vs UK Comparison
Over the coming months, we are going to pick hot topics in the cardboard tubes industry and try to give some UK based context. We hope you enjoy it!
How Slamming Higher Tariff on Paper Imports May Impact Indian Market?
Imposing tariffs is a tricky business for any government. This can be seen as a double-edged sword that may impact the local market both ways. In a more laymen term, higher tariffs on an imported product give an opportunity to the local manufacturers to have an upper hand in the market, promoting local businesses over the international ones within the region.
On the other hand, if the imported items are raw materials for other manufacturers, higher tariffs are going to restrict their options to local suppliers, and reduce their ability to access higher quality papers, or competitive prices on the global markets.
Indian Paper Manufacturers Association (IPMA) has urged the government to impose higher tariffs on paper imports. Right now, Asian countries like China and Indonesia export recycled papers to India- Incurring 10% customs duties- but still selling at a competitive rate. During this business downtime due to the COVID19 outbreak, the local Indian paper manufacturers are asking for a more favourable business environment for them to sustain and develop the local market. They’ve already submitted an application demanding a raise in tariff to 25% from the existing 10% on paper imports. IPMA has urged for some other adjustments including paper imports through a single port.
These steps, if materialised, are going to have a big impact on Indian paper and paper products market. The paper manufacturers are going to get a more closed market in their favour. They will see less competition from international manufacturers and would be able to adjust their selling prices, allowing them to reap more profit. Higher tariffs, thus, are going to empower local paper manufacturers.
The local cardboard tubes manufacturers, on the other hand, are not going to get the same benefits. These particular businesses look for high-quality raw materials at a more affordable price. When international suppliers don’t enter the market or come with higher pricing due to tariffs adjustment, paper tubes manufacturers get limited supplier options. This, finally, impacts pricing for the end products and the manufacturers' profit margin.
UK’s Tariff Policy:
In the post-BREXIT times, UK’s policymakers are going to have a more liberal approach towards customs duties. To boost the economy, the UK is going to slash tariffs on different raw material imports in favour of the manufacturers. Paper, for example, are going to see 0% import tariffs. Overall, as the government ascertains, 60% of businesses are going to come tariff-free. This is 13% less tariff charges than the existing numbers under the EU tariff policy, is this part of the UK's “Singapore on steroids” approach?
This approach from the UK government, unlike many other high tariff countries, is going to allow suppliers from across the world to enter the market tariff-free, helping them to compete with local paper manufacturers with their quality products and competitive prices. For cardboard tubes manufacturers like JPT, zero import tariff on raw materials means more supplier options to choose from. They will be able to compare among suppliers based on quality and pricing, irrespective of locality, and opt for the best option for their business. In contrast to high tariff countries, this should help the UK based manufacturers to source the highest quality raw materials in the world from advanced countries like South Korea and produce better quality products with more affordable prices, eventually benefiting the end-users.
The paper mills, however, may find this stride unfavourable for their business. They have to compete with manufacturers from countries where overheads production cost is lower than the UK, enabling them to supply paper products with lower pricing.
High tariffs, on the face of it may help the local paper manufacturers, but would have a negative impact on the overall cardboard tube supply chain. If governments opt for higher tariffs to help local paper manufacturers strive, his would stifle competition, reduce innovation and increase prices