Legal Definitions - protective tariff

A protective tariff is a tax imposed by a government on goods imported from other countries. The main goal of a protective tariff is to make imported products more expensive, thereby increasing the competitiveness of similar goods produced within the country. This strategy aims to shield domestic industries from foreign competition, encourage local production, and safeguard jobs within the nation.

Here are some examples to illustrate how a protective tariff works:

• Example 1: Supporting a Domestic Automobile Industry

  Imagine a country that wants to strengthen its own automobile manufacturing sector. The government might impose a 25% tariff on all imported cars. This means that a car imported from another country that originally costs $20,000 would now have an additional $5,000 tax, making its price $25,000 before other taxes and dealer markups. Meanwhile, a domestically produced car of similar quality might still sell for $22,000. By making imported cars significantly more expensive, the tariff encourages consumers to purchase vehicles made within the country, thereby protecting local car manufacturers and their employees from foreign competition.

• Example 2: Protecting Local Agricultural Products

  Consider a nation with a robust but vulnerable domestic rice farming industry. If other countries can produce and export rice at a much lower cost, the local farmers might struggle to compete. To prevent this, the government could implement a protective tariff on imported rice. This tax would raise the price of foreign rice, making it less appealing to consumers compared to locally grown rice. As a result, domestic rice farmers are better able to sell their produce, maintain their livelihoods, and continue contributing to the nation's food supply without being undercut by cheaper imports.

• Example 3: Fostering a New Technology Sector

  A government decides it wants to become a leader in sustainable energy and aims to develop a strong domestic industry for manufacturing wind turbines. To give its nascent local companies a chance to grow and innovate, it imposes a tariff on wind turbines imported from countries with established, large-scale manufacturers. This tariff makes foreign-made wind turbines more costly for domestic energy companies to purchase, encouraging them to buy from the new local manufacturers. This protection allows the domestic wind turbine industry to develop its technology, build production capacity, and create jobs without being immediately overwhelmed by cheaper, more experienced foreign competitors.