TARIFF THEORY
A tariff is the export or import tax between two or more sovereign states. Duty is generally the policy involved in foreign trading and has traditionally been used by some countries as an income source. Today, the tariffs are used as protectionism instruments in a vast number of states. They are also quotas to the exports and imports and could be either variable where the price determines the tariff amount or fixed where the amount is constant for all costs. Too much taxation discourages consumers from buying the goods as their price becomes too high. High tariff usually targets at diverting the international market to the local market where it encourages people to consume local products hence boosting a state’s economy. Tariffs, therefore, tend to discourage importation by reducing foreign competition and stimulating the production and consumption of local goods. The tax stands out to protect infantry industries and allow the import substitution industrialisation.
ANSWER
Joining a trade block affects a small nation’s welfare exceedingly harmful .this is because according to the tariff theory, the tariff is determined by the good’s price where an investor is required to adjust the good’s price higher after the importation tariff. For this, a small nation’s economy can collapse after joining the trade block since the governance only focuses on the imported goods discouraging the local market hence affecting the consumption of local products.
Reference
Kelsey, R. W. (1929). The tariff. Philadelphia: McKinley.