Tariffs and Quotas

Karen Schnietz

Tariffs are taxes imposed on foreign-made goods (imports) coming into a country. The tax (also referred to as a duty) raises the price of the good. This has the immediate effect of shielding domestic manufacturers from some of their foreign competitors, and thus tariffs are referred to as protectionism. The tax protects domestic producers (and the labor employed by those domestic firms) from foreign competition by allowing relatively less efficient domestic producers (who must charge a higher price than more efficient firms if they are to recoup their costs) to remain in business. Simultaneously, the product price rises, and the government collects tariff revenues from its domestic consumers, who must pay both the original price of the import and the amount of the tariff. Thus, the winners from tariffs are the government imposing the tariff and the domestic firms and labor whose products receive tariff protection, while the losers are ...

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