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What is a Tariff?

By Sheri Cyprus
Updated May 16, 2024
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A tariff is a tax placed on imported goods. Each country has separate regulations, but there are five main types of tariffs: revenue, ad valorem, specific, prohibitive and protective.

A revenue tariff increases government funds. For example, countries that do not grow bananas may create a tax on importing bananas. The government would then make money from businesses that import the fruit.

An ad valorem tariff means that the tax applies to a percentage of the import's value such as a set number of cents on every dollar of value. A specific tariff, on the other hand, means that the tax is not concerned with the estimated value of the imported goods, but rather is based on specific amount of the goods. This type may apply to the number of goods imported or to the weight, volume or other measurement of the goods.

A prohibitive tariff is one that is such as high cost that it keeps the item from being imported. A protective tariff is used to raise the price of imported goods as a protective measure against the competition from foreign markets. A higher tax allows a local company to compete with foreign competition.

Protective tariffs can be advantageous as they can help foster the local economy, but sometimes they can also make the price of the item so expensive that companies must charge more. For example, when gas prices become too high, industries such as the trucking industry may have to charge retailers more for delivering products. The retail industry then has to mark up their items to allow for their increased transportation costs in order to make the same profit they once did. The end result is that consumers pay more for the goods.

When no tariff or other restrictions are placed on imported goods, it is called free trade. Some people consider free trade to allow increased economic growth potential. Others counter that the removal of tariffs to permit free trade only makes the economy have to depend on global markets rather than increase the stability of domestic markets.

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Discussion Comments

By anon153884 — On Feb 18, 2011

My company sells software and most are download. Do we have to report this to pay tariff?

By anon151700 — On Feb 11, 2011

it is a good explanation. mj

By anon124980 — On Nov 08, 2010

it's of great importance because it enhances the economy of a country, even locally and broadly

By anon113109 — On Sep 23, 2010

is it important in my economy?

By anon86169 — On May 24, 2010

now i understand more about the importance of tariffs. not only does it foster the development of a nation, but it also contributes to national capacity building.

By anon80781 — On Apr 28, 2010

I'm sorry, I see myself as a geek, but it has been three years since I have been in a social studies class. I am 17, doing american history 1. I don't understand tariffs. I really don't understand any of this.

By anon65841 — On Feb 16, 2010

why is it bad for the economy? if it weren't for tariffs, there would be no tax money for the government and then we would go into another recession. Shortened

By anon64548 — On Feb 08, 2010

I think it is good for local economy in terms of protecting employment, and local businesses to compete strongly against the foreign industries.

By anon64458 — On Feb 07, 2010

thanks, couldn't be a better explanation than this. The school book just didn't have a clear explanation and i just have a test up coming so this was very helpful.

By anon63840 — On Feb 03, 2010

How is this going to help the economy?

By anon45550 — On Sep 17, 2009

i think it is not good for our economy.

By anon34145 — On Jun 17, 2009

Where is the transition where a revenue tariff becomes a protectionist tariff? Is it at a certain percentage level?

By bigwhillie — On May 12, 2009

what are the costs and benefits of tariffs?

By anon6353 — On Dec 26, 2007

what ways can a country overcome tariff barriers?

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