Tariff

A tariff or import tax is a duty imposed by a national government, customs territory, or supranational union on imports of goods and is paid by the importer. Exceptionally, an export tax may be levied on exports of goods or raw materials and is paid by the exporter. Besides being a source of revenue, import duties can also be a form of regulation of foreign trade and policy that burden foreign products to encourage or safeguard domestic industry. Protective tariffs are among the most widely used instruments of protectionism, along with import quotas and export quotas and other non-tariff barriers to trade.

Tariffs can be fixed (a constant sum per unit of imported goods or a percentage of the price) or variable (the amount varies according to the price). Tariffs on imports are designed to raise the price of imported goods to discourage consumption. The intention is for citizens to buy local products instead, which, according to supporters, would stimulate their country's economy. Tariffs therefore provide an incentive to develop production and replace imports with domestic products. Tariffs are meant to reduce pressure from foreign competition and, according to supporters, would help reduce the trade deficit. They have historically been justified as a means to protect infant industries and to allow import substitution industrialisation (industrializing a nation by replacing imported goods with domestic production). Tariffs may also be used to rectify artificially low prices for certain imported goods, due to dumping, export subsidies or currency manipulation. The effect is to raise the price of the goods in the destination country.

There is near unanimous consensus among economists that tariffs are self-defeating and have a negative effect on economic growth and economic welfare, while free trade and the reduction of trade barriers has a positive effect on economic growth. American economist Milton Friedman said of tariffs: "We call a tariff a protective measure. It does protect . . . It protects the consumer against low prices." Although trade liberalisation can sometimes result in unequally distributed losses and gains, and can, in the short run, cause economic dislocation of workers in import-competing sectors, the advantages of free trade are lowering costs of goods for both producers and consumers. The economic burden of tariffs falls on the importer, the exporter, and the consumer. Often intended to protect specific industries, tariffs can end up backfiring and harming the industries they were intended to protect through rising input costs and retaliatory tariffs. Import tariffs can also harm domestic exporters by disrupting their supply chains and raising their input costs.

The English term tariff derives from the French: tarif, lit. 'set price' which is itself a descendant of the Italian: tariffa, lit. 'mandated price; schedule of taxes and customs' which derives from Medieval Latin: tariffe, lit. 'set price'. This term was introduced to the Latin-speaking world through contact with the Turks and derives from the Ottoman Turkish: تعرفه, romanized: taʿrife, lit. 'list of prices; table of the rates of customs'. The Ottoman Turkish term derives from Arabic: تعريف, romanized: taʿrīf, lit. 'notification; description; definition; announcement; assertion; inventory of fees to be paid' which is the verbal noun of Arabic: عرف, romanized: ʿarafa, lit. 'to know; to be able; to recognise; to find out'.

In the city state of Athens, the port of Piraeus enforced a system of levies to raise taxes for the Athenian government. Grain was a key commodity that was imported through the port, and Piraeus was one of the main ports in the east Mediterranean. A levy of two percent was placed on goods arriving in the market through the docks of Piraeus. The Athenian government also placed restrictions on the lending of money and transport of grain to only be allowed through the port of Piraeus.

In the 14th century, Edward III took interventionist measures, such as banning the import of woollen cloth in an attempt to develop local manufacturing. Beginning in 1489, Henry VII took actions such as increasing export duties on raw wool. The Tudor monarchs, especially Henry VIII and Elizabeth I, used protectionism, subsidies, distribution of monopoly rights, government-sponsored industrial espionage and other means of government intervention to protect the wool industry.

A protectionist turning point in British economic policy came in 1721, when policies to promote manufacturing industries were introduced by Robert Walpole. These included, for example, increased tariffs on imported foreign manufactured goods, export subsidies, reduced tariffs on imported raw materials used for manufactured goods and the abolition of export duties on most manufactured goods. Britain was thus among the first countries to pursue a strategy of large-scale infant-industry development. Outlining his policy, Walpole declared:

Nothing contributes as much to the promotion of public welfare as the export of manufactured goods and the import of foreign raw materials.