That’s a great question; and in order to answer it, we first need to define the term.
What is a Tariff?
A tariff is a special type of tax, or international “duty,” that we assign to different classes of consumer goods that can be imported or exported between two countries either by industry professionals or by simple Clearit customs brokerage. Tariffs provide their originating governments with revenue on all sales conducted within that country in regards to these goods which helps to ensure that foreign trade is fair to local industries.
Tariffs and Fair Trade
Tariffs are important for ensuring fair trade. It is especially easy, these days, for a consumer in America—where money has a higher value—to purchase products made in other countries—where money may be undervalued—and save significantly. This, however, reduces the amount of goods bought by companies who make and sell their products in America. Tariffs add cost to those foreign products in order to ensure that American products remain competitive. The same is true for all other major nations, including Canada, for example. China, India, the United States, Japan (and others) all deal with tariffs in some way.
Various global powers impose tariffs but there are really only a few reasons to do this:
- Domestic job protection—tariffs increase the overall retail price of foreign goods, which are typically less expensive than local ones. Thus, tariffs ensure that lcoal goods—which are often higher in price—can compete with cheaper international goods
- Domestic Industry growth—tariffs also help to protect new industries. Anytime a country wants to develop a new industry, tariffs can be imposed so that domestic consumers will be more likely to buy locally instead of internationally (and, thus, encourage domestic industry growth)
- Political Negotiation—sometimes a government will impose a tariff to send a message to another country that they disagree with their business practices. Typically this happens between two countries who already have a trade relationship but one of the pair has violated the trade agreement or is not following various international trade regulations or guidelines
- Tariffs can also protect consumers from buying a product that the government might view as potentially harmful—by dramatically increasing the final retail price of this product, a government can hope to discourage consumer from making the purchase.