What are tariffs?
Tariffs are taxes on imported products. Governments impose them in order to discourage consumers from purchasing imported products and/or to raise revenue.
Tariffs can be ad-valorem (% taxes) or specific (fixed sum taxes)
Example: The EU's common external tariff, which is a single external tariff on imports coming in the EU from countries outside the trade union, does raise revenue but its main aim is to encourage member states to trade with each other.
However, the success of tariffs depends on:
- The magnitude of the tariff. The higher the tariff imposed is, the greater the decrease in demand for imports and the higher the revenues received.
- The price elasticity of demand/ price elasticity of supply. eg. If demand for imports is inelastic, the imposition of tariff will not significantly decrease consumption of imports.
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