TARIFFS

• One of the oldest and most pervasive forms

of protection and barrier to trade
• Tax on the value of imported goods from
other countries and foreign market
• imposed by a government on goods and
services imported from other countries that
serves to increase the price and make
imports less desirable, or at least less
competitive, versus domestic goods and
services. Tariffs are generally introduced as
a means of restricting trade from particular
countries or reducing the importation of
specific types of goods and services.
• The government imposing the tariff is looking to
restrict imports of foreign goods and services,
protect its own industries and companies
manufacturing such items and raise tax revenues

• Tariffs could be specific in which there is a fixed

tax rate on fee for each unit of a product or
commodity bought into a nation.
Difference between Quotas and Tariffs

• Government impose both quotas and tariffs

as protective measures to try to control
trade between countries, but there are
distinct differences between them– Quotas
focus on limiting the quantities of a
particular good a country imports or exports,
whereas tariffs impose specific fees on those
goods.– Government design to raise the
overall cost to the producer or supplier
seeking to sell goods within a country.
For example
• To discourage the purchase of Italian
leather handbags, the US Government
could introduce a tariff of 50% that
drives the purchase price of those bags
so high that domestic alternatives are
much more affordable. The
government’s hope is that the added
cost will make imported goods much less
desirable.
• Economists generally agree that free trade
increases the level of economic output and
income, and conversely, that trade
barriers reduce economic output and
income.

• Tariffs raise prices and reduce available

quantities of goods and services
businesses and consumers, which results
in lower income, reduced employment,
and lower economic output.
• For consumers- both individual
consumers and businesses- higher
imported prices mean higher prices for
goods. Example, if the price of steel is
inflated due to tariffs, individual
consumers pay more for products using
steel, and businesses pay more for steel
that they use to make goods. In short,
tariffs and trade barriers tend to be anti-
consumer.
Protecting Consumer
A government may levy a tariff on
products that it feels could endanger
its population

Ex: South Korea may place a tariff on

imported beef from the US if it thinks
that the goods could be tainted with a
disease.
How Do Tariffs Affect
Prices?
• Tariffs increase the prices of
imported goods. Because of this,
domestic producers are not forced
to reduce their prices from
increased competition, and
domestic consumers are left paying
higher prices as a result.