What is Tariff

Tariff
Everyone on this planet consciously or unconsciously wants more than they already have. People work hard to achieve their dreams and later develop new dreams after accomplishing the older ones. But everything comes with a price tag. Growth is not always easy. Small businesses cannot survive due to branded products in the markets. To protect such people and also to reduce such imports, the tariff is imposed by the government.

What is a Tariff?
A tariff refers to the tax imposed by the government on imported goods from other countries. Tariff is imposed majorly to protect the domestic producers, but the government also imposes tariffs to reduce imports from other countries, thereby promoting the use of domestic products.


Types of Tariff
Tariffs can be specific or ad valorem. The government wants to raise awareness of domestic goods, and therefore when tax or tariff on imported goods is unit-based, it is a specific tariff. On the other hand, when the tariff is based on a certain percentage of the imported value, it is termed an ad valorem tariff.

History of Tariff
In ancient times, the government collected taxes on imports as a means of revenue. A name was not necessarily given to those taxes collected. It was only in 1789 that The Tariff Act of 1789 was signed into law by George Washington, the president of The United States of America, on July 4, 1789, and was passed by the first Congress.


In the pre-modern times, cross-border trade sounded suspicious, and countries preferred to occupy lands in the form of colonies rather than trading directly. After occupying those colonies, high tariffs were imposed on such colonies, and trade barriers were placed to make sure that the colonies dealt with the colonizer only. This way of trading is called mercantilism, where colonizing countries used to establish their supremacy by occupying more land of other nations.

It was only in the late 20th century that the idea of free trade took everyone’s attention, and countries began to expand and became more accepting of other goods. But to ensure best trade practices, World Trade Organization was formed on January 1 1995, to govern international trade. WTO ensures that no country should enforce barriers to trade if all the safe trade practices are followed.

Countries can protect their domestic industries from exploitation due to cheap imports or bulk imports from foreign countries. Importing countries impose tariffs on such goods, and they can be in the form of anti-dumping duty, safeguard duty, protective duty, countervailing duty, etc.

The tariff has come a long way, and now the idea of imposing it is to protect the nation's economy.

Why Impose Tariffs?
Tariffs can be imposed as a basis for providing protection or raising revenues. The benefits of imposing tariffs are listed below-

Protection to Producers- Bulk imports or dumping of goods from certain countries might lower the revenues of local manufacturers and producers. Government imposes tariffs to prevent the exploitation of local goods.
Protection of small and medium enterprises- Every reigning government ensures that the economy grows and that each element grows equally.

Import effects such small and medium enterprises as consumers shift their attention to those goods and such industries struggle to survive. Thus, a tariff is imposed on imported products to protect infant enterprises.

Preserve National security- Many imports can create indebtedness, and countries might become eventually over-dependent on imported products, thus losing a sense of ownership. Tariff ensures equal distribution of wealth and preserves ownership rights of the countries.

Avoiding unemployment- Dependency on imported goods will eventually lead to the shutting down local industries, thereby causing unemployment for many people. Therefore, tariff protects the nation’s well-being as a whole.


Aftermath of Tariff
There are certain aftermaths of tariff impositions that should be considered.

Reduction of innovation- Domestic industries might stop innovating to compete with the imported products. Thereby harming the ultimate consumers, as the market will be filled with similar products. Eventually, the prices of all the products will be the same, and there will be heavy price competition.

Trade rivalry- Trade rivalry can be developed between nations imposing tariffs on their country’s goods, thereby increasing tensions between nations.

Use of dominating position- Developed countries might exploit developing or under-developed nations by imposing heavy tariffs on the exports and reducing foreign trade. This might result in a trade war, and such conditions affect the entire world.

Inflation- Imported products might end up causing inflation as it raises the standard of living of many people. People tend to spend more than their capacity, thereby increasing demand, increasing prices, and causing overall inflation.

When should the government impose tariffs?
Tariffs should be imposed by the government when there is a potential threat or harm to domestic manufacturers or based on requests.

Can tariffs be imposed only at the time of import?
tariff can be imposed at the time of the import. But the government can impose tariffs in the form of various duties before, at the time, or after the import of goods, depending on the type of damage.

Who pays the tariff and to whom?
The importing firm pays tariffs to the country's government where the goods are imported.

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