Tariff

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A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and policy that taxes foreign products to encourage or safeguard domestic industry.^{[citation needed]} 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 and services to discourage consumption. The intention is for citizens to buy local products instead, thereby stimulating 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 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.

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.^{[1][2][3][4][5]} Although trade liberalisation can sometimes result in large and unequally distributed losses and gains, and can, in the short run, cause significant economic dislocation of workers in import-competing sectors,^[6] free trade has advantages of lowering costs of goods and services for both producers and consumers.^[7] The economic burden of tariffs falls on the importer, the exporter, and the consumer.^[8] 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.^[9][10]

Classical and neoclassical economists, who support free trade, believe that trade deficits are not a disadvantage because trade is mutually beneficial.^[11] Protectionist economists, on the other hand, argue that trade deficits are harmful and lead to offshoring and deindustrialization. For example, John Maynard Keynes, who opposed free trade, noted that countries with trade deficits weakened their economies, while countries with trade surpluses grew richer at the expense of others. Keynes believed that imports from surplus countries should be taxed to avoid trade imbalances.^[12] Ultimately, he advocated a certain degree of economic self-sufficiency for each nation.^[13]