Importers need to know if or how much they have to pay for goods from abroad.
A tariff is the application of a duty against goods and services from a foreign supplier. It is a tax on the value of imported goods, which raises their price to consumers. Governments introduce tariffs to protect certain industries from competitive imports. The positive effects of import tariffs are felt mainly by local producers of the same goods, while the negative effects can be felt by the entire population, because of reduced competition and the higher prices consumers have to pay.
Types of Import Tariffs
There are two basic types of tariffs: ad valorem and specific. The latter is a fixed tax on an imported product and is the same for all products of its kind. The former is a percentage of the value of a product, and can change over time as the value of the product changes. Sometimes a combination of the two is used.
Tariff Rates
Importers of foreign goods need to know if, or how much, they will have to pay in tariffs for the goods they wish to buy abroad. Each government sets its own rates for all kinds of goods and services. Countries which are members of certain free trade areas, such as NAFTA in North America or the European Union, do not impose tariffs on goods imported from other members of the same area. Also, members of the World Trade Organization aim to eliminate, reduce or at least the harmonize tariffs they charge each other.
Other Protectionist Measures
Protectionism refers to policies designed to restrict the import of goods and services. In addition to import tariffs, governments have a range of other measures designed to make imports more expensive, or importing more difficult. Quotas are specific limits on the quantity of imported goods or on the shipment's value. Subsidies are funds given to particular domestic industries to help them become competitive on the international market. Currency controls limit the availability of foreign currency for the purchase of foreign goods. Administrative regulations include bureaucratic procedures and special marketing standards, or health and safety provisions for imported goods.
Arguments Against Import Tariffs
Proponents of free trade argue that free trade benefits everyone. They base their claim on the theory of comparative advantage, which states that if a country specializes in the production of those goods and services in which it is relatively efficient compared to its competitors, it will be better off. This theory also says that specialization leads to an increase in productivity and economic growth.
Arguments in Favor of Import Tariffs
Critics of free trade use two main arguments: the infant industry case and national security. The first argument calls for temporary protection for industries likely to become competitive on the world stage one day. The second argument says that matters of national security should take precedence over trade. This means that countries need to be self-sufficient in the production of certain strategic goods, such as food, water or electricity.
