Protective tariff

Tariff Rates in Japan (1870-1960)

Tariff Rates in Spain and Italy (1860-1910)

Droits de douane (France, UK, US)

Average Tariff Rates in USA (1821-2016)

U.S. Trade Balance (1895–2015) and Trade Policies

Protective tariff is a tariff imposed by a government on imported goods with the aim of making imported goods more expensive than similar goods produced domestically. This form of tariff is primarily used to protect domestic industries from foreign competition, support local employment, and promote domestic economic growth. Protective tariffs are a tool of trade policy that countries use to control the volume and types of goods coming into a country.

Overview

The concept of a protective tariff is rooted in the mercantilism theory, which dominated economic thought and policy from the 16th to the 18th century. Mercantilists believed that a country's wealth could be maximized through the regulation of trade, specifically by minimizing imports and maximizing exports. In modern times, protective tariffs are associated with protectionism, a policy aimed at shielding domestic industries from foreign competition.

Protective tariffs can have several effects on an economy. They can lead to increased prices for consumers, as the added cost of the tariff is often passed on to the buyer. This can reduce the quantity of imports and encourage consumers to buy domestically produced goods. On the other hand, protective tariffs can also lead to retaliation from other countries, which may impose their own tariffs on goods exported from the country that initially imposed the protective tariff. This can lead to a decrease in exports and potentially harm the overall economy.

Arguments for and against

Supporters of protective tariffs argue that they help to protect nascent or struggling domestic industries from international competition, thereby preserving jobs and promoting industrial growth. They also argue that tariffs can help reduce a country's trade deficit and can be used as a tool to negotiate better trade terms with other countries.

Critics, however, argue that protective tariffs distort market economies, leading to inefficiencies and higher costs for consumers. They also contend that tariffs can lead to trade wars, which can have widespread negative effects on the global economy. Furthermore, critics argue that protective tariffs can harm domestic industries in the long run by reducing the incentive for them to innovate and become more competitive globally.

Historical examples

One of the most famous examples of protective tariffs is the Tariff of 1828, also known as the "Tariff of Abominations," in the United States. This tariff imposed high duties on imported goods, leading to significant economic hardship in the Southern states, which were more dependent on imports. The controversy over this tariff contributed to the Nullification Crisis, a major confrontation between the state of South Carolina and the federal government.

Another example is the Hawley-Smoot Tariff of 1930, which raised U.S. tariffs on over 20,000 imported goods to record levels. Many economists believe that this tariff exacerbated the Great Depression by severely reducing international trade.

Modern use

In the modern global economy, the use of protective tariffs has declined with the advent of free trade agreements and the establishment of international trade organizations such as the World Trade Organization (WTO). However, countries still use tariffs as a tool to protect certain industries or to retaliate against unfair trade practices by other countries.

Conclusion

Protective tariffs are a controversial tool of trade policy with both supporters and critics. While they can protect domestic industries and preserve jobs in the short term, their long-term benefits are debated. The impact of protective tariffs on an economy depends on a variety of factors, including the specific industries targeted, the overall trade policy of the country, and the reactions of trading partners.