What do tariffs mean

But when it comes to steel other strategically important materials, some nations feel that they need their own supply. This can make it difficult to ramp up production of weapons at times of war. Therefore, tariffs are often imposed on strategically important materials. Some governments reject tariffs, believing that free trade between nations is a positive thing — even if it means some domestic businesses are priced out of domestic markets.

Other governments see tariffs as an important means by which to achieve their political agenda and exert their influence on the international stage. Protective tariffs are part of a protectionist agenda. Protectionism means structuring the economy in such a way as to protect domestic industries at the expense of foreign industries. A government might see its citizens contributing billions of dollars in trade revenue by purchasing goods from a hostile or powerful foreign country.

Protective tariffs can prevent this. The markets of the US and China are deeply intertwined, and even a small rise in tariffs on either side can have a big impact on businesses. The US also raised tariffs on imports of steel and aluminum in , upsetting Canada and Mexico. However, these tariffs were dropped in May Whatever emerges from the ashes of these treaties is unlikely to involve a reduction in tariffs.

Businesses must plan accordingly. Tariffs affect everyone. Many businesses thus increase their product prices as companies are not left with many alternatives to increase gross profit margin.

This phenomenon, however, is something that could be detrimental for a company as consumers steer away from high prices. Tariffs are government-controlled, and thus out of the control of companies and businesses that are being affected.

If you want to remain at the very top of the competitive market, you will typically want to maintain your current product prices. But how do you do this while maintaining and increasing your gross profit margin? Profit trust has a solution. Hire us to reduce all of your operational expenses, instantly. Contact us for ways to reduce business costs, and to learn about profit enhancement tactics that work. ProfiTrust reduces indirect operating expenses by offering clients some of the lowest rates in the Country as a result of our purchasing power.

If you are ready to save money for your business, please schedule your complimentary minute discovery call with Ben. We lower your bills with existing service providers and price their competition. This gives you ultimate control and transparency in the marketplace to make an informed decision.

Remember Me. Forgot password? Share on facebook. Share on google. Share on twitter. Share on linkedin. Share on pinterest. Share on tumblr. Share on stumbleupon.

Share on reddit. Customs authorities impose tariffs on goods arriving at a nation's borders. What Are Tariffs? Compared to domestic goods, imported goods might be: Cheaper Better quality Unavailable domestically While importing goods can be beneficial for businesses and consumers, there are many reasons why national governments may wish to discourage imports. Why Do Countries Impose Tariffs? There are many reasons a government may wish to discourage imports: In an attempt to decrease unemployment To raise revenues for the state To ensure strategically important industries can survive What Are Some Different Types of Tariff?

A tariff can take several forms: Ad valorem tariff — a tariff calculated as a proportion of the price of the goods being imported. Specific tariff — a tariff imposed as a cost per unit or according to weight or volume.

Compound tariff — a combination of ad valorem and specific tariff — a charge per unit, plus a charge as a proportion of the price. What are the Risks of Tariffs? There are several risks involved when a government imposes tariffs: Tariffs can harm businesses that import goods. Tariffs can cause diplomatic issues with other countries.

Other countries can impose retaliatory tariffs, which hurt exporters. How Do Tariffs Affect Businesses? Tariffs have different effects on different types of businesses and people.

Tariffs can hurt small businesses. By entering your email, you agree to receive marketing emails from Shopify. Email address. Your store name. Create your store. Opens in a new window Opens an external site Opens an external site in a new window. Business encyclopedia Learn everything there is to know about running a business.

Search Search. Tariff 1 minute read. What is a Tariff? International Tariffs By the same token, other governments can apply tariffs for the same reason. A key point to understand is that the tariff imposed affects the exporting country indirectly as the domestic consumer might shy away from their product due to the increase in price.

If the domestic consumer still chooses the imported product then the tariff has essentially raised the cost for the domestic consumer. There are two types of tariffs:. Governments may impose tariffs to raise revenue or to protect domestic industries—especially nascent ones—from foreign competition. By making foreign-produced goods more expensive, tariffs can make domestically produced alternatives seem more attractive. Governments that use tariffs to benefit particular industries often do so to protect companies and jobs.

Tariffs can also be used as an extension of foreign policy as their imposition on a trading partner's main exports may be used to exert economic leverage. Tariffs can have unintended side effects:. In pre-modern Europe, a nation's wealth was believed to consist of fixed, tangible assets , such as gold, silver, land, and other physical resources.

Trade was seen as a zero-sum game that resulted in either a clear net loss or a clear net gain of wealth. If a country imported more than it exported, a resource, mainly gold, would flow abroad thereby draining its wealth.

Cross-border trade was viewed with suspicion, and countries much preferred to acquire colonies with which they could establish exclusive trading relationships, rather than trading with each other. This system, known as mercantilism , relied heavily on tariffs and even outright bans on trade.

The colonizing country, which saw itself as competing with other colonizers, would import raw materials from its colonies, which were generally barred from selling their raw materials elsewhere. The colonizing country would convert the materials into manufactured wares, which it would sell back to the colonies.

High tariffs and other barriers were put in place to make sure that colonies purchased manufactured goods only from their colonizers. The Scottish economist Adam Smith was one of the first to question the wisdom of this arrangement. His Wealth of Nations was published in , the same year that Britain's American colonies declared independence in response to high taxes and restrictive trade arrangements. Later writers, such as David Ricardo , further developed Smith's ideas, leading to the theory of comparative advantage.

It maintains that if one country is better at producing a certain product, while another country is better at producing another, each should devote its resources to the activity at which it excels. The countries should then trade with one another, rather than erecting barriers that force them to divert resources toward activities they do not perform well.

Tariffs, according to this theory, are a drag on economic growth, even if they can be deployed to benefit certain narrow sectors under some circumstances. These two approaches— free trade based on the idea of comparative advantage, on the one hand, and restricted trade based on the idea of a zero-sum game, on the other—have experienced ebbs and flows in popularity.

Relatively free trade enjoyed a heyday in the late 19th and early 20th centuries when the idea took hold that international commerce had made large-scale wars between nations so expensive and counterproductive that they were obsolete. World War I proved that idea wrong, and nationalist approaches to trade, including high tariffs, dominated until the end of World War II.