why governments impose tariffs
governments may impose tariffs for several reasons tariffs can be used to raise revenues for governments this kind of tariff is called a revenue tariff and is not designed to restrict imports for instance in 2018 and 2019 president donald trump and his administration imposed tariffs on many items to rebalance the trade deficit in the fiscal year 2018 customs duties received were 41 6 billion in fiscal year 2019 duties received were 71 9 billion 12governments can use tariffs to benefit particular industries often doing so to protect companies and jobs for example in april 2018 president donald trump imposed a 25 ad valorem tariff on steel articles from all countries except canada and mexico 3 in march 2022 president joe biden replaced the tariff on steel products from the united kingdom with a tariff rate quota of 500 000 metric tons and reached quota deals with several other countries 45this proclamation reopened the trade of specific items with the u k while taking measures to protect domestic u s steel manufacturing and production jobs by making foreign produced goods more expensive tariffs can make domestically produced alternatives seem more attractive some products made in countries with fewer regulations can harm consumers such as a product coated in lead based paint tariffs can make these products so expensive that consumers won t buy them tariffs can also be used as an extension of foreign policy as their imposition on a trading partner s main exports may be used to exert economic leverage for example when russia invaded ukraine much of the world protested by boycotting russian goods or imposing sanctions in april 2022 president joe biden suspended normal trade with russia in june he raised the tariff on russian imports not prohibited by the april suspension to 35 6unintended side effects of tariffstariffs can have unintended side effects advantages and disadvantages of tariffsproduce revenuesopen negotiationssupport a nation s goalsmake a market predictablecreated issues between governmentsinitiates trade warshistory of tariffsin pre modern europe a nation s wealth was believed to consist of fixed tangible assets such as gold silver land and other physical resources trade was seen as a zero sum game that resulted in either a clear net loss or a clear net gain of wealth if a country imported more than it exported a resource mainly gold would flow abroad thereby draining its wealth cross border trade was viewed with suspicion and countries preferred to acquire colonies with which they could establish exclusive trading relationships rather than trading with each other this system known as mercantilism relied heavily on tariffs and even outright bans on trade the colonizing country which saw itself as competing with other colonizers would import raw materials from its colonies which were generally barred from selling their raw materials elsewhere the colonizing country would convert the materials into manufactured wares which it would sell back to the colonies high tariffs and other barriers were implemented to ensure that colonies only purchased manufactured goods from their home countries 78the scottish economist adam smith was one of the first to question the wisdom of this arrangement his wealth of nations was published in 1776 the same year britain s american colonies declared independence in response to high taxes and restrictive trade arrangements 9later writers such as david ricardo further developed smith s ideas leading to the theory of comparative advantage it maintains that if one country is better at producing a specific product while another country is better at producing another each should devote its resources to the activity at which it excels the countries should trade with one another rather than erect barriers that force them to divert resources toward activities they do not perform well according to this theory tariffs drag economic growth even if they can be deployed to benefit specific narrow sectors under some circumstances 10these two approaches free trade based on the idea of comparative advantage on the one hand and restricted trade based on the idea of a zero sum game on the other have experienced ebbs and flows in popularity relatively free trade enjoyed a heyday in the late 19th and early 20th centuries when the idea took hold that international commerce had made large scale wars between nations so expensive and counterproductive that they were obsolete world war i proved that idea wrong and nationalist approaches to trade including high tariffs dominated until the end of world war ii 11from that point on free trade enjoyed a 50 year resurgence culminating in the creation in 1995 of the world trade organization wto which acts as an international forum for settling disputes and laying down ground rules 12 free trade agreements such as the north american free trade agreement nafta precursor of the united states mexico canada agreement usmca and the european union eu also proliferated 13skepticism of this model sometimes labeled neoliberalism by critics who tie it to 19th century liberal arguments in favor of free trade grew however and britain in 2016 voted to leave the european union 14 that same year donald trump won the u s presidential election on a platform that included a call for tariffs on chinese and mexican imports he implemented tariffs on china when he took office but suspended proposed tariffs on mexico 1516critics of tariff free multilateral trade deals who come from both ends of the political spectrum argue that they erode national sovereignty and encourage a race to the bottom regarding wages worker protections and product quality and standards meanwhile the defenders of such deals counter that tariffs lead to trade wars hurt consumers and hamper innovation 