Q. The effective rate of protection is a weighted average of nominal tariffs and tariffs on imported inputs. It has been noted that in most industrialized countries, the nominal tariffs on raw materials or products or intermediate components are lower than on final-stage products meant for final markets. Why could countries design their tariff structures in this manner? Who leads to be helped, and who is harmed by this cascading tariff structure?
Answer: The cascading tariff structure is almost certainly the result of systematic lobbying on the part of manufacturing interests and lobbies to lower costs of production in terms of imported inputs. The end result is actually to create effective rates of protection for downstream or final manufacturing processes that are habitually much higher than nominal tariffs on these products. An important group which is harm by this are exporters of raw materials and components in developing countries.