What is a Tariff?

Sheri Cyprus

A tariff is a tax placed on imported goods. Each country has separate regulations, but there are five main types of tariffs: revenue, ad valorem, specific, prohibitive and protective.

A tariff is often applied to packages containing imported goods.
A tariff is often applied to packages containing imported goods.

A revenue tariff increases government funds. For example, countries that do not grow bananas may create a tax on importing bananas. The government would then make money from businesses that import the fruit.

No tarrifs or quotas are placed on imported goods under free trade.
No tarrifs or quotas are placed on imported goods under free trade.

An ad valorem tariff means that the tax applies to a percentage of the import's value such as a set number of cents on every dollar of value. A specific tariff, on the other hand, means that the tax is not concerned with the estimated value of the imported goods, but rather is based on specific amount of the goods. This type may apply to the number of goods imported or to the weight, volume or other measurement of the goods.

A prohibitive tariff is one that is such as high cost that it keeps the item from being imported. A protective tariff is used to raise the price of imported goods as a protective measure against the competition from foreign markets. A higher tax allows a local company to compete with foreign competition.

Protective tariffs can be advantageous as they can help foster the local economy, but sometimes they can also make the price of the item so expensive that companies must charge more. For example, when gas prices become too high, industries such as the trucking industry may have to charge retailers more for delivering products. The retail industry then has to mark up their items to allow for their increased transportation costs in order to make the same profit they once did. The end result is that consumers pay more for the goods.

When no tariff or other restrictions are placed on imported goods, it is called free trade. Some people consider free trade to allow increased economic growth potential. Others counter that the removal of tariffs to permit free trade only makes the economy have to depend on global markets rather than increase the stability of domestic markets.

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Discussion Comments


My company sells software and most are download. Do we have to report this to pay tariff?


it is a good explanation. mj


it's of great importance because it enhances the economy of a country, even locally and broadly


is it important in my economy?


now i understand more about the importance of tariffs. not only does it foster the development of a nation, but it also contributes to national capacity building.


I'm sorry, I see myself as a geek, but it has been three years since I have been in a social studies class. I am 17, doing american history 1. I don't understand tariffs. I really don't understand any of this.


why is it bad for the economy? if it weren't for tariffs, there would be no tax money for the government and then we would go into another recession. Shortened


I think it is good for local economy in terms of protecting employment, and local businesses to compete strongly against the foreign industries.


thanks, couldn't be a better explanation than this. The school book just didn't have a clear explanation and i just have a test up coming so this was very helpful.


How is this going to help the economy?


i think it is not good for our economy.


Where is the transition where a revenue tariff becomes a protectionist tariff? Is it at a certain percentage level?


what are the costs and benefits of tariffs?


what ways can a country overcome tariff barriers?

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