Is it possible for a low nominal tariff rate to understate the effective rate of protection? What is tariff escalation?
What will be an ideal response?
Yes. In some countries, the effective rate of protection is more than twice the nominal rate. The effective rate of protection takes into account the effects of tariffs levied on raw materials and intermediate goods. Tariff structures of industrialized nations have generally been characterized by rates that give greater protection to intermediate and finished products than to primary commodities. This is referred to as tariff escalation.
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