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Mark O' Donnell
Research Analyst
August 6, 2019

Tariffs 101

The ongoing trade war between China and the US has recently created a lot of uncertainty in the market. However, many individuals are unaware of what tariffs are and how they will affect personal wellbeing.

In laymen’s terms, a Trade Tariff is a tax levied on a product when it crosses national borders.

Import Tariff:

  • Tax levied on imported products, foreign products sold in other nation's domestic markets.
  • The most common form of Tariff.
  •  Commonly referred to as a customs duty.

Export Tariff:

  • Tax levied on exported products.
  • Less common than import tariffs.
  • Illegal under US Constitution
  • Commonly used by developing nations.

Generally, a country imposes a trade tariff for one of two reasons, Revenue or Protection.

A Protection tariff is implemented in an attempt to protect a nation's domestic producers for foreign competition. Protection tariffs are often used to prevent outsourcing as a result, increasing domestic production and outputs.

With the recent tariffs imposed by the US, the ultimate goal has been job creation. By imposing tariffs on imported products, the price for purchasing these foreign products is increased, resulting in the domestically produced substitution product often being the cheaper option for consumers. Thus, increasing the demand for domestically produced goods.  The increase in demand for domestically produced goods results in the market needing to increase supply (output). To keep up with the increased demand, producers must increase output by either upping labor, or capital. Inevitably resulting in less outsourcing and domestic job creation.

A  Revenue tariff is simply implemented to generate tax revenues for the nation, by placing a tariff on either imports or exports.

Tarde tariffs have their positives, as they generate national independence and creates jobs. However, tariffs often take a toll on the global economy and may leave a nation's consumers being left worse off. Free trade allows the global market to produce outputs at a much more efficient level than what protectionism (halted trade) can produce at.

Featured image credit: https://nowiamupdated.com/trump-outlaws-huawei-and-china-has-no-schemes-to-counter-back/219/

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