(a) Define tariffs (b) What are the reasons for imposing tariffs?

Answer Details

a. Definition of tariffs. Tariffs are taxes or duties imposed by a government on goods that cross its national boundary, chiefly on imports (and sometimes on exports). They raise the price of the affected goods.

b. Reasons for imposing tariffs.

• To raise government revenue: import and export duties are an important source of income.
• To protect infant industries: tariffs make imports dearer, giving young home industries room to grow.
• To prevent dumping: they discourage foreign firms from selling goods below cost in the home market.
• To correct a balance-of-payments deficit: tariffs reduce imports and so save foreign exchange.
• To protect employment: by discouraging imports, they safeguard jobs in local industries.
• For retaliation: a country may impose tariffs in response to tariffs placed on its own goods.