A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and policy that taxes foreign products to encourage or safeguard domestic industry. Tariffs are among the most widely used instruments of protectionism, along with import and export quotas.

Tariffs can be fixed (a constant sum per unit of imported goods or a percentage of the price) or variable (the amount varies according to the price). Taxing imports means people are less likely to buy them as they become more expensive. The intention is that they buy local products instead, boosting their country's economy. Tariffs therefore provide an incentive to develop production and replace imports with domestic products. Tariffs are meant to reduce pressure from foreign competition and reduce the trade deficit. They have historically been justified as a means to protect infant industries and to allow import substitution industrialization. Tariffs may also be used to rectify artificially low prices for certain imported goods, due to 'dumping', export subsidies or currency manipulation.

There is near unanimous consensus among economists that tariffs have a negative effect on economic growth and economic welfare, while free trade and the reduction of trade barriers has a positive effect on economic growth.[1][2][3][4][5][6][7] Although trade liberalization can sometimes result in large and unequally distributed losses and gains, and can, in the short run, cause significant economic dislocation of workers in import-competing sectors,[8] free trade has advantages of lowering costs of goods and services for both producers and consumers.[9]

  1. ^ Krugman, Paul R. (May 1993). "The Narrow and Broad Arguments for Free Trade". American Economic Review: Papers and Proceedings. 83 (3): 362–366. JSTOR 2117691.
  2. ^ Krugman, Paul R. (1994). Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations. New York: W.W. Norton & Company. ISBN 9780393312928.
  3. ^ "Free Trade". IGM Forum. March 13, 2012.
  4. ^ "Import Duties". IGM Forum. October 4, 2016.
  5. ^ N. Gregory Mankiw, Economists Actually Agree on This: The Wisdom of Free Trade, New York Times (April 24, 2015): "Economists are famous for disagreeing with one another.... But economists reach near unanimity on some topics, including international trade."
  6. ^ Poole, William (2004). "Free Trade: Why Are Economists and Noneconomists So Far Apart" (PDF). Federal Reserve Bank of St. Louis Review. 86 (5): 1. doi:10.20955/r.86.1-6. most observers agree that '[t]he consensus among mainstream economists on the desirability of free trade remains almost universal.'
  7. ^ "Trade Within Europe | IGM Forum". www.igmchicago.org. Retrieved 2017-06-24.
  8. ^ Poole, William (2004). "Free Trade: Why Are Economists and Noneconomists So Far Apart" (PDF). Federal Reserve Bank of St. Louis Review. 86 (5): 2. doi:10.20955/r.86.1-6. One set of reservations concerns distributional effects of trade. Workers are not seen as benefiting from trade. Strong evidence exists indicating a perception that the benefits of trade flow to businesses and the wealthy, rather than to workers, and to those abroad rather than to those in the United States.
  9. ^ Rosenfeld, Everett (11 March 2016). "Here's why everyone is arguing about free trade". CNBC. Retrieved 10 August 2021.

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