What is an Import Tariff?
An import tariff is a tax placed by governments on commodities that are shipped into a country from a foreign country. These taxes are often a way to discourage a country's consumers from buying products from another country and to support domestic products and services. Governments generally have the right to determine what products will have a tariff and how much that tax will be. Governments often use two types: ad valorem and specific. The types of tariffs levied helps determine the value of the tax on the particular product.
A specific tariff is a set tax on a product, and this tax is the same on all products of its kind. An ad valorem tariff, on the other hand, is a tax based on a percentage of the value of the product. This tariff can change from time to time as the value of the product increases or decreases. Governments also can impose a two-part tariff, which includes a specific and an ad valorem tariff. A product with a two-part tariff would have a set tax as well as a value-based percentage tax.
An import tariff can have a negative or positive effect on the country imposing the tariff. It typically causes a foreign good to be more expensive because the foreign country selling the good raises the price of its good to offset the tariff it is charged. Therefore, the consumer must pay a higher price to purchase the foreign good, resulting in less purchase power to buy domestic goods. If customers have less purchasing power, domestic producers may not sell as much and have to reduce the workforce to accommodate the decline in business. This can lead to higher unemployment and the economy can quickly reach a recession.
Such tariffs can have a positive effect on the economy as well, however, because they create competition between domestic and foreign producers. Domestic producers typically want to ensure prices are competitive with imported foreign products to gain customers' business. This competition often leads to lower prices for consumers, leaving more purchasing power to buy other products. This can increase sales for businesses and lead to job expansion to help boost the economy.
Tariffs are not paid by the producing country; they are paid by the importer in the country imposing the tariff. In the US, the importer pays this money to the US customs office. The importer then raises his wholesale prices to the retailers who then pass these increased prices on to consumers. So ultimately (as with all taxes) it is the consumer who pays the import tariff.
The revenue to the government is substantial and diverse. Money paid by the importer to US federal customs; Sales taxes collected by the retailer on behalf of the state and local government; Corporate taxes paid by both the importer and retailer on the higher cost product; Various other taxes like an inventory tax.
Ultimately, all of these upstream taxes are passed on to the consumer, who then just has less discretionary income to spend in the way they choose. So if you believe its good to take money from consumers to give to government, then you should be in favor of import tariffs.
I understand that an import tariff can save jobs in some domestic industries, and it must feel good when it saves your job. But the cost of the tariff has to mean less spending on something else and so may not save any jobs at all. Who looks out for all those other companies who make or sell the something else?
Can tariffs imposed vary based on the mode of transportation into the country? For example, air freight vs. ocean freight on imported good?
Why do nations impose an ad valorem tariff rather than specific tariff rate?
Just recently, China imposed new import tariffs on certain goods like motorcycles, which is one good that US exports a lot of. I have no idea why China is choosing to do this. It's certain that US companies that were planning to export to China will suffer financially though.
Can import tariffs be used for political ends?
For example, can a country intentionally impose extremely high import tariffs on a specific country's goods to punish them for political reasons?
I guess that wouldn't make much sense right? Because more than the foreign country, it would be the local people who are losing out because they don't have access to those goods anymore. Also, since competition will be lower, the price of domestic goods will go up too.
If I were a country, I wouldn't want to use high import and customs tariffs to punish anyone. I think import tariffs hurt more than they help.
I'm curious about this because most Chinese goods are extremely affordable. It seems like Chinese imports like plastic products have completely taken over the market in the US. The price difference between Chinese products and American products are unbelievable.
It's kind of funny because import tariffs are supposed to raise the cost of the foreign good, but it doesn't seem to be doing that at all with Chinese goods.
"Import tariffs are often a way to discourage a country's consumers..."
That I can understand. But why have import tariffs on gifts that we didn't pay anything for? Do they want to discourage us to receive gifts? Or are they just stealing money from us?
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