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Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes

What are Tariffs?

Tariffs are a type of tax that governments impose on imported goods.

They are often used as a way to protect domestic industries from foreign competition by making imported goods more expensive for consumers.

This can help to level the playing field for domestic producers, who may not be able to compete with lower-priced imported goods.


Types of Tariffs

Specific Tariffs – are a fixed amount of money that is charged on a specific quantity of goods, regardless of the price of the goods

Ad Valorem Tariffs – are a percentage of the value of the goods.

Arguments for using Tariffs

1. They can help protect domestic industries and jobs

 By making imported goods more expensive, tariffs can make domestic products more competitive, which can help to support domestic producers and the workers they employ.

2. Tariffs can help to reduce the trade deficit

By making imported goods more expensive, tariffs can discourage consumption of foreign goods and encourage the production of domestic goods, which can help to reduce the trade deficit

3. Tariffs can help protect infant industries

In some cases, newly emerging domestic industries may not yet be competitive with foreign producers. Tariffs can provide temporary protection to allow these industries to grow and become more competitive.

4. Tariffs can generate revenue for the government

Governments can collect tariff revenues from imported goods, which can be used to fund public goods and services.

Arguments against using Tariffs

1. Higher prices for consumers

Since imported goods become more expensive due to tariffs, this can lead to higher prices for consumers, which can be particularly burdensome for low-income households.

2. Tariffs can lead to Trade Disputes or Trade Wars

countries may retaliate by imposing tariffs on goods imported from the country that imposed the original tariffs. This can lead to a cycle of escalating tariffs, which can harm international trade and relations between countries.

3. Tariffs can lead to Trade Diversion

Instead of importing the cheapest and best quality goods from the most efficient producers, consumers may be forced to purchase more expensive domestic goods or lower quality imported goods due to tariffs. This can lead to a less efficient allocation of resources and ultimately lower economic welfare.

4. Tariffs can create a burden for domestic producers

If domestic producers rely on imported inputs to produce their goods, tariffs on these imported inputs can make production more expensive, which can harm their competitiveness.

5. Tariffs can lead to inefficiencies in the economy

By artificially raising the price of imported goods, tariffs can create incentives for domestic producers to produce more goods than they would in a free market. This can lead to an overproduction of goods and result in excess capacity and inefficiencies in the economy.


Quick Fire Questions

1. Define ‘Tariffs’ (2 marks)

2. Using a diagram, explain the affect of imposing tariffs (4 marks)

3. Identify and explain the two types of tariffs (4 marks)

4. Identify and explain four arguments for using tariffs (8 marks)

5. Identify and explain five arguments against using tariffs (10 marks)


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