Define tariffs and discuss the consequences of both increasing and removing import tariffs.

Question

What will be an ideal response?

Answer 1

A tariff is a tax that a government imposes on goods imported into one country from another. The aim of increasing import tariffs is to protect domestic industries and jobs. The reason for removing tariffs is that, very often, when one country imposes an import tariff, others follow suit and the result is a series of retaliatory moves as countries progressively raise tariff barriers against each other. Governments of countries that resort to raising tariff barriers ultimately reduce employment and undermine the economic growth of their countries because capital and resources will always move to their most highly valued use. The free-trade doctrine predicts that if each country agrees to specialize in the production of the goods and services that it can produce most efficiently, this will make the best use of global capital resources and will result in lower prices.