Tariffs: What Are They and How Do They Affect the Global Economy?

Tariffs: Advantages, Disadvantages, and Impact on International Trade

Reading time : 1 minute, Discovery Chepe Id-593-FIN
Published in 03-04-2025

The application of tariffs is a practice that dates back to ancient times. Throughout history, various civilizations have used tariffs as a tool to regulate trade and generate income.

Tariffs are taxes applied to imported or exported goods. These taxes, also known as customs fees, have a significant impact on the global economy. Their primary function is to regulate international trade, protect domestic industry, and generate revenue for the government.

How Do Tariffs Work?

When a good crosses a border, a tariff may be applied to it. This tax increases the cost of the imported product, which can make it less competitive in the domestic market. Tariffs can be specific (a fixed amount per unit) or ad valorem (a percentage of the value of the good).

Impact on the Global Economy

Tariffs affect various economic actors:

1- Consumers: Tariffs can increase the prices of imported goods, which reduces the purchasing power of consumers.
2- Domestic producers: Tariffs can protect domestic industry from foreign competition, allowing it to grow and develop.
3- Importing and exporting companies: Tariffs increase import and export costs, which can affect the profitability of companies.
4- Governments: Tariffs generate revenue for the government, but they can also provoke trade retaliation by other countries.

All About Tariffs: Definition, Types, and Economic Effects

Advantages of Tariffs

a) Protection of domestic industry: Tariffs can protect domestic companies from unfair competition.
b) Generation of income: Tariffs are a source of income for the government.
c) Promotion of local production: Tariffs can encourage domestic production by making imported goods more expensive.

Disadvantages of Tariffs

a) Price increases: Tariffs can increase the prices of goods, affecting consumers.
b) Reduction of trade: Tariffs can decrease the volume of international trade.
c) Trade retaliation: Tariffs can cause trade wars and affect international relations.
d) Inefficiency: Tariffs can protect inefficient industries, preventing their modernization and competitiveness.

Tariffs are a complex tool with advantages and disadvantages. Their impact on the global economy depends on how they are used and on the trade policies of each country.