tariff
Picture a toll booth at the border, but instead of charging cars, it charges goods. When a foreign-made television arrives at the port, the government slaps a fee on it before it can be sold. That fee gets folded into the price on the shelf, so the imported TV costs more, and the locally made one looks better by comparison. That border fee on imports is a tariff — the oldest and most familiar tool of protectionism.
A tariff is a tax on imported goods, paid to the government of the importing country. It can be a fixed amount per unit (a 'specific' tariff, say 5 dollars per tyre) or a percentage of the price (an 'ad valorem' tariff, say 25 percent). Its effects ripple in predictable ways. The price of the imported good rises, so domestic consumers pay more and buy less. Domestic producers, shielded from the cheaper import, sell more at the higher price and gain. The government collects tariff revenue. But consumers lose more than producers and the government gain combined, leaving a net loss to the country — a deadweight loss — because some mutually beneficial trades simply do not happen.
Tariffs have clear winners and losers, and that is the key to understanding the politics. The winners — protected domestic firms and their workers — are concentrated, organized, and loud; the losers — millions of consumers each paying a little more — are dispersed and quiet, so tariffs are politically tempting even when they cost the nation overall. A crucial and widely misunderstood point: a tariff is paid by importers in the home country and largely passed on to home consumers and businesses, not 'paid by' the foreign country, even though it is meant to hurt foreign sellers. Tariffs can also invite retaliation, where trading partners raise their own, shrinking trade for everyone.
A country puts a 25 percent tariff on imported steel. Steelmakers at home cheer and sell more, but every domestic factory that buys steel — carmakers, appliance firms, builders — now pays more for it, and so do their customers. The protected steel jobs are visible; the higher costs spread thinly across the whole economy are not.
A tariff protects one visible industry by quietly taxing everyone who uses its product.
Tariffs are paid by importers at home and mostly passed on to domestic buyers, not 'paid by' the exporting country. They also risk retaliation that shrinks trade on both sides.