Legal Definitions - tariff

A tariff is a tax or duty imposed by a government on goods and services that are imported from another country. Governments typically implement tariffs to generate revenue, protect domestic industries from foreign competition by making imported goods more expensive, or as a tool in international trade negotiations.

• Example 1: Protecting a Domestic Industry

  Imagine Country A has a thriving local textile industry. To ensure its domestic clothing manufacturers can compete with cheaper imports, Country A's government might impose a 15% tariff on all imported garments from Country B. This means that for every $100 worth of clothing imported from Country B, an additional $15 tax is added, making the imported clothes more expensive for consumers and retailers in Country A. This encourages them to purchase clothing from local producers instead.

• Example 2: Generating Government Revenue

  Consider a small island nation that imports most of its electronics. To boost its national treasury, the government decides to levy a 5% tariff on all imported smartphones and computers. When a shipment of smartphones arrives from an overseas manufacturer, the importer must pay this 5% tax to the government before the phones can be sold in the country. This directly contributes to the government's funds, which can then be used for public services.

• Example 3: Strategic Trade Policy

  Suppose Country X believes that Country Y is unfairly subsidizing its automotive industry, making its cars artificially cheap in international markets. In response, Country X might impose a 25% tariff on all cars imported from Country Y. This action serves as a strategic move to counteract what Country X perceives as unfair trade practices, making Country Y's cars significantly more expensive and less competitive within Country X's market, thereby leveling the playing field for Country X's own car manufacturers.