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💡 What is a Tariff?

A tariff is a tax or duty imposed by a government on goods and services imported or sometimes exported across international borders.


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🏷️ Types of Tariffs

1. Import Tariff (Most Common)

Tax on goods coming into the country.

Example: India imports electronic goods from China. India imposes a tariff on those goods.



2. Export Tariff

Tax on goods leaving the country.

Less common. Sometimes used on rare natural resources.



3. Transit Tariff

Tax on goods passing through a country to another destination.





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📦 Based on Calculation Method

1. Ad-Valorem Tariff

Charged as a percentage of the value of the good.

Example: 10% on an iPhone costing ₹1,00,000 = ₹10,000 tariff.



2. Specific Tariff

A fixed amount per unit of the item.

Example: ₹1000 on every TV imported.



3. Compound Tariff

Combination of Ad-Valorem + Specific tariff.

Example: ₹5000 per washing machine + 5% of its value.





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🎯 Why Governments Impose Tariffs?

1. To protect domestic industries
→ Makes imported products more expensive, encouraging people to buy local.


2. To generate revenue
→ Especially for developing countries.


3. To control trade balance
→ Reduce imports, increase exports.


4. For national security
→ To limit dependence on foreign goods in key sectors.


5. To penalize certain countries
→ For political or economic reasons (called retaliatory tariffs).




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🔁 Effects of Tariffs

Positive Effects Negative Effects

Protects local industries & jobs Increases prices for consumers
Encourages domestic production Can cause trade wars between countries
Increases government revenue Can reduce efficiency and innovation



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🌍 Real Life Example

Suppose:

India imports steel from China.

Indian steelmakers can't compete because Chinese steel is cheaper.

The Indian government imposes a tariff of 20% on Chinese steel.

Now Chinese steel becomes expensive → Indian consumers buy local steel → Indian industry benefits.



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📚 Bonus Terms

Customs Duty – Another word for import/export tariff.

Free Trade Agreement (FTA) – Agreement between countries to reduce/remove tariffs (like India–ASEAN FTA).
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Trade Barrier – Any policy (including tariffs) that restricts international trade.