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What is a Car Tariff?

A person buying an imported car.
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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 24 March 2014
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A car tariff is a fee which is imposed on imported vehicles. The tariff can be assessed in a number of ways, depending on the policies of the nation instituting the tariff, and it is usually based on a percentage of the declared value of the vehicles. Tariff rates for cars, trucks, and other types of vehicles are usually different, with a schedule being established and periodically reevaluated to determine whether or not the car tariff is appropriate in the current market.

Like other types of tariffs, a car tariff is designed to promote the welfare of domestic industries. The car industry may not be able to compete with cheaper imports, but once tariffs are assessed, they level the playing field slightly, giving domestic cars an edge in the marketplace. Car tariffs can also sometimes be used to penalize car importers who bring in inefficient products, with the car tariff being reduced for vehicles with low emissions or high fuel efficiency.

Importers often criticize car tariffs because they add to the cost of doing business, and some argue that consumers have their freedom of choice restricted by tariffs. Some nations have responded to such criticism by abolishing or lowering their car tariffs to make the business climate more friendly to importers, while others have upheld high tariffs, arguing that their domestic automobile industries need the protection provided by tariffs.

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Determining an appropriate tariff is a delicate balancing act. If a tariff is too high, importing nations may lodge a protest, which could damage trade relations. Importers might also refuse to bring in vehicles, which could lead to protests from consumers who want to buy cars from foreign manufacturers. If a tariff is too low, on the other hand, the domestic auto industry may not be able to compete, and it could experience financial instability. Tariffs can promote a trade imbalance; the United States, for example, has a relatively low car tariff which has allowed millions of cars to be imported from Korea, while only thousands of American cars have been sold in Korea due to that nation's high tariffs.

Cars from foreign manufacturers can be less expensive for a variety of reasons, including more lax labor laws in some nations, cheaper raw materials, or government subsidies to car manufacturers which allow them to sell their goods at low cost. Some advocates of free trade have suggested that eliminating tariffs allows the market to balance itself out, and that a lack of tariffs would encourage the failure of businesses which are not running effectively, while promoting businesses with good business models.

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