Definition
A tariff is a form of federal tax, usually calculated on an ad valorem basis (i.e., as a percentage of the value) imposed on imports or exports. It can be designed to achieve various objectives:
- Revenue Tariff: This type of tariff is primarily intended to generate revenue for the government.
- Protective Tariff: Aimed at protecting domestic firms from foreign competition by making imported goods more expensive.
Besides taxation on imports and exports, the term ’tariff’ also refers to a schedule of rates or charges applied to freight transport.
Examples
- Revenue Tariff: A country imposes a 5% export tariff on its rare minerals to raise additional government revenue.
- Protective Tariff: A nation places a 20% tariff on imported automobiles to encourage citizens to buy domestic cars instead.
- Freight Tariff: A shipping company publishes a tariff schedule outlining the rates charged for transporting goods across different routes.
Frequently Asked Questions (FAQ)
Q1: What is the difference between a tariff and a tax?
A1: While both tariffs and taxes are forms of government levies, tariffs specifically refer to taxes on imports and exports, whereas taxes can apply more broadly to income, sales, property, etc.
Q2: What is an ad valorem tariff?
A2: An ad valorem tariff is calculated as a percentage of the value of the imported or exported goods.
Q3: Can tariffs be used as economic policy tools?
A3: Yes, tariffs can be used to influence trade patterns, protect nascent industries, or retaliate against unfair trade practices.
Q4: How do protective tariffs impact consumers?
A4: Protective tariffs can lead to higher prices for imported goods, potentially reducing consumer choice and purchasing power.
Q5: Are there any downsides to high tariffs?
A5: High tariffs can lead to trade disputes, economic inefficiencies, and potential retaliation from other countries.
Related Terms
- Ad Valorem Tax: A tax based on the assessed value of an item, such as real estate or personal property.
- Import Quota: A restriction that sets a physical limit on the quantity of a specific good that can be imported into a country.
- Trade Deficit: A situation where a country imports more goods and services than it exports.
- Trade Policy: Government laws related to international trade, including tariffs, trade agreements, and import/export regulations.
Online References
- World Trade Organization (WTO) - Understanding Tariffs
- U.S. Customs and Border Protection - Trade Facilitation and Revenue Division
- International Trade Administration - Tariffs
Suggested Books for Further Studies
- “Global Tariffs: Trade Wars and Their Impact” by John F. Long
- “Tariffs, Blockades, and Inflation: The Economics of the Civil War” by Mark Thornton
- “Tariff Wars and the Politics of Jacksonian America” by Stephen Campbell
- “The Power of Tariffs: How Protectionism Shapes Global Economies” by Laura Silver
Fundamentals of Tariff: International Business Basics Quiz
Thank you for exploring the intricacies of tariffs with us. Keep expanding your knowledge on international trade and economic policies!