Tariffs and protectionism Trade & Policy Tariffs and protectionism

What is a tariff? A tax imposed on imported goods and services. Tariffs are used to restrict trade, as they increase the price of imported goods and services, making them more expensive to consumers.

Why impose tariffs? Tariffs provide additional revenue for governments and domestic producers at the expense of consumers and foreign producers. They are one of several tools available to shape trade policy.

Tariff goals Governments may impose tariffs to raise revenue or to protect domestic industries from foreign competition, since consumers will generally purchase foreign-produced goods when they are cheaper.

Tariff goals To protect infant industries. If a country wants to develop its own industry producing a particular good, it will use tariffs to make it more expensive for consumers to purchase the foreign version of that good. The hope is that they will buy the domestic version instead and help that industry grow.

Tariff goals To protect domestic jobs. If consumers buy less- expensive foreign goods, workers who produce that good domestically might lose their jobs.

Tariff goals To retaliate against a trading partner. If one country doesn’t play by the trade rules both countries previously agreed on, the country that feels jilted might impose tariffs on its partner’s goods as a punishment. The higher price caused by the tariff should cause purchases to fall.

Tariff goals To protect consumers. If a government thinks a foreign good might be harmful, it might implement a tariff to discourage consumers from buying it.

Tariffs & Protectionism - Application How did this work as German states moved towards unification? How does this work in North America? Why are pros and cons of nations entering into Free Trade agreements?

Tariffs & Protectionism - Application NAFTA US - Colombia