A tariff is a tax that a government charges on imported goods (products brought in from other countries). Usually, a tariff is an added cost on imported goods and services, which is normally passed on to the consumer.
Why Do Governments Use Tariffs?
- Rescue for the Government – Taxes collected from imported goods and services help fund public services.
- Protect Local Businesses – Makes imported goods cost more, so customers buy local.
- Trade Measure – If a country is trading unfairly, tariffs can be used as leverage to negotiate better trade terms.
Example: The Toy Story
Imagine:
Malaysia makes teddy bears for RM 20 each.
China also makes teddy bears but sells them for RM 15 (cheaper because of lower labor costs).
Without Tariff:
Malaysians buy Chinese teddy bears because they’re RM 5 cheaper.
Local toy makers lose business.
With 20% Tariff:
China’s teddy bears now cost RM 15 + 20% tax = RM 18.
Malaysians think: “Hmm, local bears (RM 20) are only RM 2 more… I’ll support Malaysian-made!”
So, Local toy makers survive. It ensure fairness for local product to compete with exported product.
Good or Bad? It Depends!
Good for: Local workers, factories and governments.
Bad for: Consumers (pay higher prices) and exporters (lose sales).
Think of it like this to in simpler terms:
Tariffs are like a “shield” for local businesses.
But if used too much, they can start a trade war, where other countries retaliate in the same manner by increasing tariffs on your exported products and services.
Quick Summary
Tariff = Tax on Imports
Goal = Help Local Businesses
Side Effect = Higher Prices
