Tariff


Tariffs:

A tariff is a tax imposed by one country on the goods and services imported from another country.

Background:

  • In pre-modern Europe, a nation's wealth was believed to consist of fixed, tangible assets, such as gold, silver, land, and other physical resources (but especially gold).
  • Trade was seen as a zero-sum game that resulted in either a clear net loss of wealth or a clear net gain.
  • If nations imported more than it exported, its gold and foreign reserve would flow abroad, draining its wealth.
  • Cross-border trade was viewed with suspicion, and countries much preferred to acquire colonies with which they could establish exclusive trading relationships, rather than trading with each other. 
  • This system, known as mercantilism, relied heavily on tariffs and even outright bans on trade.

 

 

Key Facts:

  • Tariffs are used to restrict imports by increasing the price of goods and services purchased from another country, making them less attractive to domestic consumers.
  • Governments impose tariffs to raise revenue, protect domestic industries, or exert political leverage over another country.
  • Tariffs often result in unwanted side effects, such as higher consumer prices.
  • Tariffs have a long and contentious history and the debate over whether they represent good or bad policy rages on to this day

 

 

Who impose Tariffs?

  • Almost every country imposes some tariffs. Exceptions include Hong Kong, which as a “free port” never imposes tariffs.
  • Devolved and rich nations maintain low tariffs compared to developing countries.
  • There are several reasons why: developing countries might have more fragile industries that they wish to protect, or they might have fewer sources of government revenue.