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A tariff, or duty, is a tax levied by a nation's government on a good imported into that country. The U.S. and other nations impose tariffs on a wide variety of imported goods. Worldwide, the average tariff on goods is about five percent and it's collected at the time a nation's customs force clears the imported good for entrance into that country. A tariff on imported goods makes them more expensive in comparison to similar products made by a nation's domestic producers.
How Tariffs Work
Tariffs, or duties, on imported goods are taxes on those products. Nations sometimes impose tariffs on certain imported products to gain additional revenue because those goods are highly desired among the populace and many people buy them. More frequently, a nation imposes tariffs on imported goods to make them costlier and to protect domestic producers and employees making those same products. If imported Product A is more expensive than domestically produced Product A1 then, all other things being equal, consumers usually select Product A1.
Tariffs and Jobs
Nations argue that imposing tariffs on imported goods helps save jobs in domestic industries. Without U.S.-imposed tariffs on Chinese-made tires, for example, U.S. tire producers might be at a competitive price disadvantage. Labor costs in the Chinese tire industry are far less than U.S. tire industry labor costs. Tariffs on Chinese-made tires help to eliminate their price advantage over U.S.-made tires, thus helping to prevent thousands of U.S. tire employees from being laid off.
Potential Tariff Disadvantage
Tariffs are typically imposed in response to another nation's unfair trade practices. Anti-tariff proponents, though, believe they're ultimately harmful to a tariff-imposing nation's economy because they may benefit only a single industry while hurting others. A tariff on steel might help U.S. steel makers but hurt U.S. producers of steel end products such as hubcaps. With steel more expensive to purchase, a U.S. hubcap maker would need to raise prices to compensate, possibly driving customers to cheaper non-tariff-laden foreign hubcaps.
Tariffs and Dumping
The World Trade Organization ruled in 2010 that the U.S. acted properly to impose tariffs on Chinese tires. Application of a tariff on an imported good is a powerful tool for the nation imposing it. Tariffs may make sense when another nation's trade practices, such as pricing tires well below production costs in a practice known as "dumping," are particularly egregious. Dumping imported products on a market are meant to price domestic competitors out and subsequently create near-monopolistic market advantages for the dumper.
Tony Guerra served more than 20 years in the U.S. Navy. He also spent seven years as an airline operations manager. Guerra is a former realtor, real-estate salesperson, associate broker and real-estate education instructor. He holds a master's degree in management and a bachelor's degree in interdisciplinary studies.