April 27, 2020
Tariffs have become a hot button issue over the past few years.
But what exactly are they? And what kind of impact do they have on the economy? Here’s a brief guide to all things tariff!
Quick definition and brief history
A tariff is a tax on imports and exports between states. Let’s say you make pottery and sell it on the internet. You start getting lots of orders from Belgium, so you need to ship bowls and vases across the pond. You have to bump up prices a bit to cover the transportation costs, but your products do well.
But then Belgium decides to impose a tariff on imported pottery. Suddenly, you have to pay a 10% tax to get anything into the country. So what can you do? Increasing your prices to cover the tax will probably make your pottery too expensive and it won’t sell. As long as that tariff is in place, it might make more sense to sell locally or find another country without the tariff.
Who do tariffs benefit?
Why would a country want to impose a tariff? It doesn’t necessarily make the government more money. People can find other markets where they don’t have to pay an entrance fee. And besides, untaxed or free trade normally produces more jobs in poorer countries and gets cheap products into richer ones.
Unfortunately, not everyone wins in free trade. What if your pottery was so amazing and so much cheaper than local pottery that you started putting Belgian potters out of business? Sure, you would probably create tons of jobs in your own country and Belgium would be flooded with superior plates and mugs, but thousands of Belgians would be out of work. And they wouldn’t be happy and they might take out that anger at the ballot box. A tariff on imported pottery would be a way for Belgium to protect a section of their economy (and voters) from financial ruin.
Imposing tariffs, like any economic policy, are a mixed bag. They’ve been out of style for a long time, but globalization and changes in the world economy have made them more appealing to workers competing with (and potentially losing to) cheap foreign labor. Only time will tell if their comeback is for good or just a flash in the pan!