Volume 5 Issue 1: Tariffs

Tariffs can hurt the domestic market.

Tariffs may lead to higher prices of imported goods and less variety in the long-run . Low-income households are generally hit the hardest, as they spend a higher proportion of their income on necessities.

Domestic industries may also become less efficient and innovative as they would not need to compete with overseas firms.

Moreover, other industries which depend on imported goods as inputs will likely suffer from higher costs, which might hamper growth and lead to job losses. (E.g. car producers rely on imported steel as an input).

Tariffs can be used to protect certain domestic industries in the short-term.

Tariffs can be a temporary tool to protect infant industries from overseas competition so that they can develop and become efficient. Some attribute the economic development of Asian countries like South Korea to this strategy.

However, it can be difficult to judge which industries are worth protecting to begin with. Moreover, such tariffs can be tricky to remove later.

Tariffs often lead to lower economic efficiency globally.

Tariffs interfere with the principle of comparative advantage, where efficiency is maximised as each country focuses on what they are best at producing.

• Country A produces wheat at less cost than Country B
• Country B produces apples at less cost than Country A
• It is more economically efficient for A to produce wheat, and B to produce apples, and for both to trade with each other.
• Conversely, if they were to impose tariffs on each other and try to produce both wheat and apples, there would be less wheat and apples produced in total.

Tariffs can help in safeguarding national interests and autonomy.

Tariffs may be needed to counteract unfair practices like dumping. This refers to selling products at an artificially low price to gain market share.

Outsourcing the production of certain goods or services to other countries might also pose a risk to national security. Particularly when trade relationships are unequal, dependence on trading partners makes a country vulnerable to external pressures. This is especially so if it is for key industries, like oil or steel.