What does Tariff actually Mean?

“Tariffs are generally imposed because the government does not want to expose its domestic industries to heavy-duty competition from foreign countries. ”

Tariff can be called a tax that is imposed by a government on any good that is imported into the country. It is mostly in the form of some percentage of the value of good that is being imported. Tariffs are generally imposed because the government does not want to expose its domestic industries to heavy-duty competition from foreign countries.

Mostly, it happens that when goods like electronic equipments etc. are not in fashion in the developed countries, companies from these countries tend to sell these goods in developing countries at reduced rates. This is technically known as dumping and tariffs are an important tool to avoid such a situation.

Some economists are against the practice of imposing tariffs. They contend that if all the countries remove their tariffs and there is complete free trade in the world, a big surge in the global economy can take place.

Let’s take an example as to what effect tariffs have on the economy of a developing country. Let’s say that country A (developing) produces LCDs that are in big demand in country B (developed). The government of country B is wary that the LCDs produced by country A will lead to loss of its own electronic goods industry. So, it imposes a heavy tariff on the LCDs that are imported in its country.

On the other hand in country A the LCD producers have to face a harsh time. As they have to pay heavy tariff they refrain from selling LCDs in country B. The result is that they have to cut back their production.

Now, as is well known, reduction in production means reduction in workforce. This leads to unemployment. As unemployment rises other industries in country A also get severely affected because their products are now less in demand for the reason that people are consuming them in less quantity.

So, we see that restrictions such as tariffs have a negative impact on one or the other side. But to see the other side of the coin, malpractices such as ‘dumping’ have forced certain nations to impose extremely heavy tariffs on several goods and services.

In a nutshell, it can be said that in the present economic setup tariffs have come to stay as a necessary evil.

Author - DeeKay

Tags - Finance, Economy

This article was created by DailyOjo staff. Report Spam/Abuse