Tariff programs are tariff regimes that apply to imports. Tariffs prove to be taxes that governments put on goods that are imported. Every nation has its own tariff programs and amounts. There are five principle tariff types in any tariff program. These are revenue, specific, ad valorem, protective, and prohibitive.
Revenue types of tariffs are those that boost government revenues. A revenue tariff would be one set up by a country that does not grow oranges but imposes tariffs on the import of oranges. This way, that government makes money when any business chooses to import and sell oranges.
Ad valorem tariffs are those that a government places as a percent of the value of imports. An example of such a tariff is fifteen cents for each dollar value. This contrasts with specific tariffs that do not revolve around the imported goods’ estimated value. Instead, they are levied as a result of the specific quantity of the goods in question. Specific tariffs can be figured up based on the volume of the goods that are imported, on their weight, or on any other form of measurement applicable to goods.
Tariffs that are prohibitive in nature turn out to be the ones that stop a business from importing a good at all. These tariffs might be used on goods that a government does not wish brought into the country. This might be for safety, health, or moral reasons.
Protective tariffs are set by a government in order to ensure that the sale price of goods that are imported do not destroy a local industry. These are employed to protect domestic markets from foreign competition. Higher tariffs will permit local companies that may not be so efficient to compete effectively against the foreign competitors within the local domestic markets. While protective tariffs have their time and place in building up the local firms and economy, they can have unintended consequences. They might cause an item to be so costly that companies have to charge more for their related products.
A good example of this pertains to the prices of gasoline. As they rise excessively through tariffs, companies involved in shipping, like trucking companies, have no choice but to charge retail businesses higher prices for getting their products to them. The retail businesses will then respond by increasing the prices of their goods to compensate for the greater costs of transportation. They have to do this to make the same level of profit that they did in the past. The final result will be that consumers bear the brunt of the tariff by having to pay higher prices for their products and goods.
All countries employ tariff programs for one reason or another. They may not apply them evenly to every import or industry, but they will utilize them somewhere. Sometimes countries choose not to put tariffs on goods being imported. This is known as free trade in these cases. Free trade is believed by many economists to permit higher levels of economic growth. Critics say that without tariff programs, economies will be forced to rely on global markets instead of their own local markets.