Tariffs are taxes imposed by a government on imported goods as well as on exported and in-transit goods. The primary purpose of the tariff is to discourage the consumption of imported goods, thereby encouraging the consumption of domestic products; in addition, tariffs may be a good source of government revenue.
There are many reasons for imposing a tariff on imported products. Following are three of the more important arguments for imposing tariffs.
The Infant Industry Argument. The oldest argument for the imposition of tariffs is the Infant Industry Argument. The logic behind this argument is that the young industries of a country will not be able to compete with older and more experienced foreign firms and will therefore go out of business, causing in the process a big unemployment problem. The imposition of a tariff on imported goods raises the price of the foreign product, in effect lowering the price of the domestic good and allowing local businesses to continue to operate.
The Employment Creation Argument. According to the Employment Creation Argument, imposing an artificially created disadvantage (a tariff) on foreign competitors will allow the domestic industry to increase production and hire new workers. The increase in production will also create a need for more raw materials and other semi-finished goods produced by related industries. The ultimate result of this enhanced industrial activity will be a substantial increase in the number of people who are employed.
The Improvement of the Balance of Trade Argument. Proponents of the Improvement of the Balance of Trade Argument believe that tariffs will cause the citizens of a country to purchase less of the imported product, thereby decreasing the importance of imports in the country's balance of payments.
- 805 reads
