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