What Are Tariffs and Why Are They Important?

Whenever you export or import something across any international border there is a really good chance you will have to pay a Clearit tariff on it.  A tariff, which is also sometimes called a “duty”—they are interchangeable—is, for lack of a better word, a tax.  More specifically, it is one of a schedule of taxes assigned to different goods, which you must pay when you cross an international border.

TARIFF: A DEFINITION

Basically, when you travel abroad and you buy something overseas, it might be lower in price than something you could be in your home country. A tariff can be added to such an item, making it more expensive to a traveler. While this sounds like a deterrent—and it is—you should think of it more like a strategy for encouraging people to purchase goods in their home country.

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WHY DO WE NEED TARIFFS?

Here is another way to look at it:  tariffs help to encourage domestic economics and reduce foreign competition.  It is not a means to completely bar trade, but just to keep things in balance. For example, healthy foreign trade would encourage foreign competition—which is typically at a lower price—to put pressure on domestic distributors in order to present products to the consumer at very competitive prices.

JUSTIFICATIONS FOR TARIFFS

Here are four ways the government justifies the institution of tariffs?

  • Tariffs protect domestic industries (and the related jobs) by increasing the final retail price of cheaper foreign goods so that they are within the same price range as domestic goods
  • Tariffs protect new and emerging industries by increasing the price of foreign goods so that local products which are new—and typically pricey in the beginning—can be competitive
  • Tariffs protect political trade alliances by allowing for importing nations to raise their requirements as a means to discourage exporting nations from violating trade alliances
  • Tariffs protect consumers by discouraging consumers from buying foreign products which could be potentially harmful

As you can see, tariffs are a very good thing, even though they make products more expensive.  They help to make sure that domestic companies can succeed in a highly competitive international market.

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