Tariffs can be said as the custom taxes or penalties that the government impose on imports or exports in a country. The total tax amount is calculated by the tax percentage of the total cost of the product, including freight and insurance.
The governments of different nations impose tariffs on goods and services and also restrict importation of cheap substandard goods.
Below listed are some of the advantages and disadvantages of tariff:
Pros of Tariffs:
- Protects local industries
Government imposes tariffs on imports so as to protect the local industries from collapsing. They try to discourage the industries from importing cheaper goods from abroad hence protect them industries from selling cheap good.
- Expansion of the economy
It also plays an important role in the vas development and expansion of the economy of the particular country by creating more employment opportunities, reduction of the deficit and increase in revenue for the government.
- Creates employment opportunities
Tariffs create employment opportunities for the citizens by encouraging the growth of local industries to grow to produce more local goods
- Prevents dumping
Many countries tend sell their rejected goods to other countries. Tariffs protect the country from being a recipient such goods and prevents dumping.
- Strengthens local economy
With the citizens of the country being involved in local industries to manufacture local goods and services, there is a vast improvement on the growth of the economy. Also, as it controls foreign goods and service from entering the market, it reduces the deficit of the economy since products are produced locally.
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Cons of Tariffs:
- Demoralize foreign investment
Tariff demoralizes the foreign investors from investing for the country. This may have a negative effect on the economy as there is no direct investment from the foreign country.
- Discourages imports
As tariffs discourage countries from exporting goods to many other countries, the countries with less economy value may face to shortage of goods and services.
- Increases taxation
Tariffs increases the tax levied on goods and services in the good which ultimately increases the price of the goods.
- Influence international relations
Tariffs also impact the relationship between two countries since they deny the goods to be imported through foreign relations.
- Negative effects on the economy
There is a high potential of having negative effects on the economy of the country because of tariffs. With reduction of the competition between manufacturers there may lack adequate supply of products and many others.