What are Protective Tariffs?

A tariff is a kind of tax that is charged on exported and imported items. It means tariff is charged on both kinds of goods i.e., exported and imported. However, some goods may be exempted from this kind of tariff. Protective Tariffs refer to the charges which a country charged on imported goods to protect its domestic market. It also protects countries Industrialists in their Production. So, that their markets remain intact and do not get dumped by outside supply.

Advantages of Tariff

  • The amount collected through tariff goes to the general fund of the US treasury which helps pay for running government expenditure.
  • Protective tariffs protect some industries from competition abroad.
  • The tariffs revenue collected by the Government augments its revenue.
  • The tariffs on imported goods are not the same and it differs from one good to another. Some Goods could be charged higher tariffs and others could be brought under lower tariffs.
  • These tariff rates are put by the countries with respect to their tariffs act.

Nature of Protection

Protective tariffs are good if it is charged to protect its market. If the supply of imported goods is more in the market, then it would result in market failure. The Industries of the countries engaged in the production of Goods may collapse and eventually, it will stop further Production of Goods.

International Trade

  • Today the world has become a global village. Some countries are rich in specific resources.
  • These resources could be natural resources, raw materials, skilled and unskilled manpower. 
  • The Industrialists irrespective of the countries are in need of these resources for the Production of Goods. This requirement of Resources promotes trade among countries. 
  • There have been countries that are lacking advancement and industrialization. These are the cases mostly with the underdeveloped countries of Asia and Africa.
  • Present time the entire world is facing the challenge of COVID -19 Pandemic.

So, the supply of kits and vaccines to control this Pandemic is the responsibility of all. We could not combat this challenge unless we share technology and advancement with respect to medical science. So, the trade among countries could not be avoided at any cost.

Trade and Commerce

The main objective of trade is to earn Profit by supplying the goods to other countries, but the objective of commerce is to run the commercial activities smoothly.

  • It is the responsibility of the respective country to tackle those issues that hinders the smooth flowing of business.
  • The Manufacturers depend on the supplier of raw materials of Goods. Once Goods are manufactured the role of the wholesaler and retailer comes into the picture.
  • These are the stakeholders in supplying the goods to the end consumer. Also, there have been E-commerce companies that are engaged in this supply chain management.
  • The tariff could disturb the countries market and hence countries put some taxes on the imported items.
  • These strategies of taxes are not for making the imported goods expensive but to ensure a robust market.
  • The lack of tax may create a supply of goods at a cheaper price.

The price of Goods available in the market produced by the Industrialist of the same country may be dearer than that of imported Goods. It will hamper their sales of Goods. This may lead to the collapse of Industries engaged in the production of those goods.

So, Protective tariff is inevitable to some extent as far as protecting the market is concerned. The countries do not charge taxes on all imported goods. There have been some goods that are not under the Protection tariffs of a country.

Generally, countries do not impose taxes on Pharmaceutical ingredients. These ingredients are used in the manufacturing and preparation of medicines. Earlier in the year 2020 when the world was facing threat from Novel Coronavirus, the USA asked India to lift the ban on the export of Pharmaceutical ingredients.

The Department of Commerce and Industries of India in order to ensure an efficient supply of the medicines had imposed certain restrictions on pharmaceutical ingredients.

Post the USA request and further dialogue between the two countries, India agreed to export Pharmaceutical Ingredients. In this case, the USA does not impose such tariffs. This supply of Pharmaceutical ingredients would be utilized by the Pharma Companies in producing medicines to combat Novel Coronavirus.

Protective Tariffs on Agricultural Products

  • Countries in order to encourage farmers of their own countries had imposed protection tariffs on imports of Agricultural Produce. Apart from these protective tariffs, the developed countries also support their farmers by providing them subsidies on various agricultural equipment, seeds, fertilizers, and others.
  • This support to farmers by their respective countries enable them to produce a better quality of agricultural Produce and in good quantity.
  • The Farmers of Developed Countries are getting support from their countries and almost in all ways. These are subsidies, better quality seeds at low prices, technological support.
  • However, the farmers of Developing and underdeveloped countries are lacking all measures of support from their countries. The Governments provide them subsidies but lack support in other aspects.
  • Due to this, it has become very difficult for the Agricultural Producers to compete in the international market, especially in the market of Developed Nations. So, Developing and Underdeveloped Countries imposed tariffs, the Protective tariffs on agricultural imports so that the market has competitive prices for the agricultural Produce.
  • These measures of the Government on imposing protective tariffs on imported Agricultural Produce would eventually raise its prices in the domestic market. It would help each country's farmers to sell their crops in the market at competitive prices. However, when the Government imports any specific agricultural Produce in a time of crisis, these Protective tariffs are lifted.

Importance of Protective Tariffs & Revenue Tariffs

  • The main objective of the Protective Tariff is to protect the Domestic market.
  • It discourages imports as the prices of Goods rise on charges of the protective tariffs.
  • Revenue Tariff is different from that of Protective tariffs only with respect to intent only.
  • Revenue tariff intended to fund the Government with no ulterior motive.
  • The money collected through tariffs is called a duty or a customs duty.
  • In the USA these duties are collected by US customs and Border protection. In 2017, $ 33.1 billion was collected through import duties by the USA was equivalent to 1.4% of the total value of imported goods. It is evident from this fact that the USA tariff is quite low. In fact, this tariff is the lowest in the world.

Anti-Dumping Duties

The countries also put Anti-Dumping Duties on Imported Goods to protect their industries. Some countries try to dump the market of a country by entering the market through Penetration Prices. These keep their goods at low prices so that even the protective tariffs do not make the prices dearer. In the long run, this will disrupt the domestic market of the country. In order to protect the Domestic market and the Industrialists, the countries put an anti-dumping duty on the imported goods. Apart from this tax the Government also plans to put high tariffs to combat the issue of dumping of their market. It ensures competitive prices of goods in the market and prevents market failure.

The Mechanism of Free Trade

Free trade refers to trading among countries without any duty on both the imported and exported goods. This would be an ideal trade if brought into practice. However, countries across the world are not uniform with respect to the economy, social, political, Geographical locations, and with respect to skilled and unskilled manpower and natural resources. These limitations put challenges for free trade among countries. Apart from that, the difference in the value of the currency of different countries puts the other challenge for free trade.

Context and Applications

The topic is inevitable with respect to stakeholders associated with International Trade. It will give insights to Exporters and importers to plan their strategy before entering in the international market.

The topic Protective Tariffs are studied under various disciplines. Some of these Disciplines are:

  • MBA (International Business)
  • Master of Commerce 
  • Custom House Agents 
  • Professional Practicing as Lawyers in International trade.

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