Question

What are the effects of a tariff? Briefly explain who benefits and who loses when tariffs are

imposed?

Answer 1

Tariffs are a tax imposed on imports by the Government. They raise consumer prices, lead to a fall in imports and can lead to retaliation from other countries. Tariffs are an important barrier to free trade; they are often imposed to protect domestic industry from cheap imports. This often results in retaliation, however, with other countries placing tariffs on their exports.

Tariffs have different repercussions on the economy, businesses and people. The conventional line of thinking is that if a government places a tariff on products made in other countries then it will benefit people in the country with the protective tariff. The government, for example, placed tariffs on European products in the early days of the United States, which made those products more expensive to encourage people to buy products made in the United States. Those tariffs helped the growth of American industries.

If, however, a tariff is placed on a product from other countries, those other countries' governments could retaliate by placing tariffs on the products made in the first country. The U.S. president has now said the government will impose tariffs on aluminum and steel coming from other countries. That would be good in those industries for American workers and businesses. However, if other countries retaliate and put tariffs on other United States-made products, workers in those other industries might suffer.

In reality, it can be argued that countries should be producing products they can make cheaper than any other country. Ressources are not used most efficiently when tariffs are imposed and people end up paying more for products. While in different industries there might be "winners" and "losers" on the job market, tariffs go against the principles of free trade.