Tariff Barriers

Definition

Tariff barriers refer to taxes or duties imposed on imported goods by a government, which increases the cost of those goods for consumers in the importing country. These barriers are used as a form of protectionism to make domestic products more competitive and to generate revenue for the government.

5 Must Know Facts For Your Next Test

1. Tariff barriers can be used to protect domestic industries from foreign competition, support employment, and generate revenue for the government.
2. The level of tariffs can be adjusted by the government to achieve specific economic or political goals, such as promoting certain industries or retaliating against other countries' trade policies.
3. Tariff barriers can lead to higher prices for consumers, as the additional costs are often passed on to them, and can also result in retaliatory actions by trading partners.
4. Developing countries often use tariff barriers as a way to protect their infant industries and promote economic development, while developed countries may use them to protect mature industries.
5. Multilateral trade agreements, such as the World Trade Organization (WTO), aim to reduce tariff barriers and promote free trade between member countries.

Review Questions

• Explain how tariff barriers can be used as a form of protectionism.
  • Tariff barriers can be used as a protectionist measure to make imported goods more expensive for consumers, making domestic products more competitive. By increasing the cost of imported goods through tariffs, the government can protect domestic industries from foreign competition and support employment in those industries. This can help infant industries develop and mature industries maintain their market share, but it can also lead to higher prices for consumers and potential retaliatory actions by trading partners.
• Describe the role of tariff barriers in the context of trade liberalization and multilateral trade agreements.
  • Trade liberalization efforts, such as those promoted by the World Trade Organization (WTO), aim to reduce or eliminate tariff barriers to promote free trade and open markets between countries. Multilateral trade agreements often include provisions for gradually lowering tariff rates over time, with the goal of increasing the flow of goods and services between member countries. However, some countries may still use tariff barriers as a way to protect their domestic industries, even in the context of these trade agreements, leading to tensions and potential trade disputes between nations.
• Analyze the potential impacts of tariff barriers on consumers, domestic industries, and the broader economy.
  • Tariff barriers can have both positive and negative impacts, depending on the perspective. For consumers, tariff barriers can lead to higher prices for imported goods, which may reduce their purchasing power and standard of living. However, for domestic industries, tariff barriers can provide protection from foreign competition, allowing them to maintain or expand their market share and employment. At the broader economic level, tariff barriers can generate revenue for the government, but they can also lead to retaliatory actions by trading partners, disrupting trade flows and potentially harming the overall economy. Policymakers must carefully weigh these tradeoffs when considering the use of tariff barriers as part of their economic strategies.

Related terms

Protectionism: An economic policy of restricting or regulating trade between nations to protect domestic industries and jobs.

Non-Tariff Barriers: Restrictions on trade that are not in the form of tariffs, such as quotas, regulations, or subsidies, which can also impede the free flow of goods and services between countries.

Trade Liberalization: The reduction or elimination of tariffs and other trade barriers to promote free trade and open markets between countries.