What Is a Tariff?
A tariff is a tax that a government places on goods coming into a country. When a company imports products from abroad, it must pay this extra cost at the border. Tariffs affect the final price of goods and play a major role in how countries manage international trade.
How a Tariff Works
When an imported item arrives, customs officials calculate a tax based on the product’s value, type, or quantity. The importer pays the tariff, which often increases the retail price. Higher tariffs make foreign products more expensive, pushing consumers toward domestic alternatives.
Types of Tariffs
- Ad Valorem Tariffs: A percentage based on the item’s value.
- Specific Tariffs: A fixed fee per unit (e.g., $5 per kilogram).
- Mixed Tariffs: A combination of both value-based and fixed fees.
Why Tariffs Are Used
- Protect Local Industries: Helps domestic companies compete against cheaper imports.
- Generate Government Revenue: Provides income for public budgets.
- Influence Trade Policy: Used in negotiations or trade disputes.
Effects of Tariffs on Consumers
While tariffs can protect jobs and support local businesses, they may also raise prices for consumers. When imported goods become more expensive, the cost often passes to buyers in the form of higher retail prices.
The Simple Takeaway
A tariff is a tax on imported goods that helps regulate trade, protect domestic industries, and generate revenue—but it can also increase consumer prices.