A tariffs is basically use to stop or restrict certain goods import from other countries therefore making it less useful to the domestic users . This tax can be set at a higher rate or a lower rate. Tariffs are usually levied by domestic governments to protect new industries against foreign competition, to protect aging industries against foreign competition, to protect against foreign companies offering their products for a price lower than their costs and to raise revenue.
When the tariff is set lower, it is because there is no competition domestically, or there is no harm to the environment, or then again protection of national defense is not attacked. Most infant industries fall into this category.
When it is set higher the governing body intends to increase the price of the end product and make imports less desirable, or less competitive, versus domestic goods and services. For example, to discourage the purchase of fairly used cars from U.S, the Italian government could introduce a tariff of 60% that drives the purchase price of those cars so high that domestic alternatives are much more affordable and importers of said products are discouraged from continuing.
Here are five of the top reasons tariff charges are used:
Tariffs are commonly used to protect infant industries. An infant industry is a new industry, which in its early stages experiences relative difficulty or is absolutely incapable in competing with established international competitors. The tariff demonstrates as a nursery that theoretically gives the intended domestic companies the necessary time it may need to properly nurture, develop, and grow its business into a competitive entity, on the international landscape. This will particularly enable start-ups gain a solid ground to avoid folding up in the near future.
Tariffs are imposed on international competitors to support domestic production and keep it secured, especially if a particular segment of the economy provides products that are critical to national defense. This can happen both during times of peace and during times of conflict.
Tariffs increase the prices of imported goods hence more domestic/local companies manufacture locally instead of importing. As mentioned earlier if a domestic industry is trying to swim above waters to compete against international industries, the government may use tariffs to discourage imports and encourage consumption of domestic goods. The overall effect is a reduction in imports, increased domestic production, and higher consumer prices.
Aggressive Trade Practices:
In other to secure domestic industries against the International competitors, governing bodies usually employ the use of tariffs to mitigate the effects of foreign entities employing unfair aggressive trade tactics such as flooding the market, in an attempt to gain market share and put domestic producers out of business.
Governments may use tariffs to diminish consumption of international goods that do not adhere to certain environmental standards.
The purpose of tariffs is to increase government revenue and to secure the manufacturing sector of the country because this will in turn yield growth and sustainability.