You must have heard about the news that President Donald Trump wanted to renegotiate tariffs of steel and aluminum with most countries in the world. Analysts explained that it was to protect domestic industries. Or have you heard about the trade war between the US and China? It’s all about tariffs. Tariffs, according to economists, can affect a country’s economy to a great extent.
Tariff, also known as Custom Duty, is a kind of tax imposed between countries on the goods and services imported or exported.
When goods or services are imported from country A to country B, country B will charge a tariff from companies in country A. The cost of products is increased, so as the price. Therefore, the products imported from country A are less attractive in country B.
There are two types of tariffs: a specific tariff, which is levied on a fixed amount, such as $100 for each product; and an ad-valorem tariff, which is levied based on the item’s value, such as 10% of the value of products.
Therefore, governments can impose tariffs in order to raise avenue and protect domestic industries. Trump also used tariffs as a political leverage to other countries.
Though nowadays, we all advocate free trade, for it’s good for global trading and the development of economies. Back to the days when protectionism was popular in the US, tariff is an important measure to protect our profits. It seems like protectionism is gaining popularity again with Trump came into power.
Tariffs have side effects as well, which us near unanimous consensus among economists.
During the Great Depression, which was a global economic disaster around the world, all western countries increased tariffs to a very high level in order to protect domestic industries. It cut off the road to recover economies by global trading. Also, high tariffs can make products more expensive and make domestic companies less creative.
Tariffs have both advantages and disadvantages. When a country decides to impose tariffs, it must think carefully.