Question

How can imposing tariffs on imports be justified?

Answer 1

Tariff is a kind of tax imposed on goods when they cross the national boundaries. Import tariff is one of the best restrictive trade policies in modern days. The imposition of tariff by a country can be justified on the following grounds.

1. Tariff as a source of revenue.

Import tariff is a kind of government tax imposed when foreign goods entering into the country. While imposing such tax the government can raise substantial revenue.

2. To correct trade deficit.

The imposition of tariff helps a country which is suffering from trade deficit. One of the reasons of trade deficit is the import of low priced goods from foreign countries. When tariff is imposed the imported goods become costly in the domestic market. This will reduce the quantity of import and help a country to overcome its trade deficit.

3. Protection of infant industry

The inflow of cheap foreign goods retards the growth of infant industries in a country. The infant industries are in the early stage of production and they cannot compete with the foreign industries having economies of scale due to long standing in the production field. Thus import tariff discourage the competition of such cheap items imported and improve the competitiveness of infant industries.

4. National securities.

The import of certain items to be discouraged in the context of national defense. A country cannot rely on a foreign country on the import of defense items. The import tariff can be used a measure to discourage the import of such items.

5. National employment.

The imposition of tariff can be justified on the ground that it expands domestic employment. The import of low cost imported items will decrease the production in domestic industries and reduce national employment. The tariff can be justified on this ground that a tariff increases the production in domestic industries and thereby employment opportunities.

6. To prevent unfair trade practices.

Certain countries usually follow unfair trade practices like dumping to get larger market share and it will throw the domestic producers out of business. The government often use tariff to prevent such unfair practices.

7. Environmental concern.

The import of certain hazardous and harmful substance often destroys the fragile nature of a country. To protect the environment, the import of such items to be discourage to a large extent.