What are Tariff Rates?

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  • Written By: Jason C. Chavis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 02 June 2020
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Tariff rates are the amount of money that must be paid above the cost of an imported or exported good from one country to another. Essentially, tariff rates are a tax on goods designed to limit the impact of foreign trade on a particular nation. These rates fluctuate depending on the country's policies as well as change due to the type of good being imported or exported. Generally, a tariff is imposed on goods either at the point of importation or passed along to the consumer. Many times, the tariff itself is enforced by customs officials and can impact goods of all sizes, from a piece of fruit to an automobile.

According to modern economic and political theory, tariff rates are most commonly associated with the idea of protectionism. Rates are adjusted most readily on import tariffs to prevent a foreign market from overexerting its forces on the domestic market. Due to this fact, these rates are generally adjusted in unison with trade policy and domestic taxation. For example, if the United States adopts a policy to promote its steel industry domestically, it will levy higher tariff rates on imported metals from China. This can create a situation in which China responds with higher tariffs on goods imported from the U.S., resulting in a trade war.

Tariffs are affected by treaties such as the North American Free Trade Agreement (NAFTA). According to this treaty, there are limited tariffs imposed on goods imported from either Canada or Mexico, resulting in a larger influx of materials from this region. As a result, the rates from other countries are adjusted across North America to help prevent too much competition against domestic industry. In addition, the U.S. has the policy of maintaining harmonized tariffs between different nations. It accomplishes this by creating a specific itemized list of different goods and the exact rate of taxation.

One of the major criticisms of tariff rates comes from the argument that it limits free trade. Essentially, if a government promotes a certain industry within its borders over another country's industry, it can result in poor performance domestically. If the foreign company is offering better product or prices, then the domestic company should be forced to compete rather than protect itself with a tariff. Those supporting this argument believe that tariff rates simply prop up companies that should otherwise fail.

In the past, tariff rates were responsible for the largest percentage of revenue to world governments. The U.S. itself drew federal revenue at high rates from the time the first tariffs were imposed in the 1790s until World War I started. At that time, domestic income taxation replaced tariff rates as the highest source of revenue. This was caused most readily by the fact that international trade became very important to the survival of the Allied Powers against the Central Powers in Europe and the Middle East, meaning the U.S. could not charge large tariffs on these warring nations.

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Post 4

But what about imposing high tariff rates and even embargoes on countries we're mad at politically? Does this make any sense? It doesn't benefit them or us. It doesn't really harm them either. Iran and Cuba are still surviving.

Post 3

@Melonlity-- You can't blame American companies for getting their goods manufactured elsewhere. They're simply following the rule of comparative advantage. Business is about making profit and cutting costs. So if a business can cut costs by producing elsewhere, they will.

As for increasing tariff rates to protect national industries, I agree with you that this is logical and necessary. Although we live in a capitalist world that encourages free trade, no government on earth is 100% an open economy. The government has to control certain factors of the economy to protect American interests. So if the American economy is being harmed by low import tariffs, then the most logical thing to do is raise them. Politics plays a part in everything, including economics.

Post 2

Tariffs are probably the biggest barriers to trade. Thankfully, there are organizations like the WTO that help regulate tariffs by encouraging and requiring its members to cooperate for free trade. There are established rules on imports, exports and tariffs. If a member breaks the rules, they are penalized.

I've never understood the idea behind import tariff rates anyway. Trade benefits everyone and so it should be free.

Post 1

Protectionism makes no sense when dealing with manufacturing nations that embrace the ideals of free trade. However, what is to be done when you have a nation like China that purposefully deflates its currency so that labor is even cheaper than it would be if the country just let currency rates float with the market?

Frankly, the U.S. is getting killed by Chinese manufacturing which is sadly employed by a lot of allegedly American companies. To combat that miserable state of affairs and generate some more jobs in the U.S., what's wrong with slapping tariffs on goods manufactured in other countries regardless of where the company selling the goods calls home? If Apple, Google, Microsoft, etc. want to claim they are American companies, let them manufacture their stuff in the U.S. and get the heck out of China.

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