Tariffs are a tax placed upon goods and services provided by other countries, and can cause an increase in price and decrease availability of those items. Tariffs create an economic burden on the country exporting the goods as importers would have to pay more for that item, meaning they will often sell less.
America imports many goods from overseas. For example, Audi and Bentley cars are mainly imported from Germany, and if the government decided to place a tariff on that, the price would go up depending on the tariff. The same with breads and pastries that are mostly imported from Canada, those prices could go up based on the tariff tax. There are different types of tariffs that can affect a country differently.
The most common type of tariff is an import tariff, which affects imported goods. There is also an export tariff that is the opposite, but these are rare. Export tariffs are unconstitutional in America so they have never been instituted. Some tariffs are put in place to generate revenue and protection; protection tariffs increase the price of imported goods which encourage citizens to buy from local businesses. Revenue tariffs are put in place to generate income for the government.
In the early days of the American government, tariffs were a main source of revenue to keep the economy stable. As time progressed, America was able to support itself without the need of high tariffs and began to impose progressive income taxes rather than the regressive tariffs. Progressive income tax rate increases as the taxable income increases, creating a direct relationship with taxation. The higher one’s income is, the more they are taxed and vice versa. Though tariffs are still used today, they are not as big a source of income as they once were.
Today, America makes most of its profits from income taxes, both individual and corporate. These taxes are used to fund government programs such as Social Security and Medicare. When tariffs are in effect, an economy might expect a decrease in unemployment and exchange rate appreciation, according to a study done by the International Monetary Fund’s Research department. Exchange rate appreciation is the increase in value of one currency to another, but this is usually a small change.
Tariffs can disrupt or reduce the flow of imports because other companies would not be willing to pay the money to import as much goods as before. The countries who export would also not be making as much money as before, leading to a decrease in production.
The IMF research department has analyzed that tariffs do lead to a mild decline in productivity, and when in effect long enough they decline in productivity could increase past the mild-term.
Depending on how the tariffs are implemented, they can have a wide variety of effects. Tariffs can both positively and negatively affect trade, as well as the economies of all countries involved.
