What Is a Tariff and Why Do We Have Them?

What is a Tariff and Why Do We Have Them?
Tariffs. You’ve likely heard about them discussed in the media, and talked about by politicians and leaders around the world. Raising or lowering tariffs can have important trade implications. But what is a tariff and why do we have them? And why are they so important to the economies and potential well-being of countries all over the world?

Let’s take a quick look at what tariffs are, where they came from, and why they’re important.

What Is a Tariff?

Simply put, tariffs are taxes put on imported goods, paid for by the importer. Customs officials collect them, and the country putting the tariffs in place gets the money. Things that get taxed might include dairy products, tobacco, or peanuts—along with a host of other things. And there definitely are trends in how high tariffs are. For example, most agricultural countries have high tariffs on those goods to protect their own farmers. On the other hand, tariffs in non-agricultural sectors are typically on the lower side, or nonexistent.

The History of Tariffs in the United States

“No taxation without representation” was one of the rallying cries in the lead up to the American Revolution. Many American colonists were upset at the taxes, and tariffs, being levied against them despite not having formal representation in Britain’s parliament.

Given this history, when the colonies began to form a nation of their own, the new government despised taxes. In the Articles of Confederation, the precursor to the U.S. Constitution, the federal government had no power to tax its citizens. However, it would soon become clear to the country’s founders that taxes were a necessary evil if the government was to be sustainable.

Congress would pass the first tariff law in 1789. The purpose was to help generate revenue for the federal government, so they could continue to run and so they could pay off post-war debts. The tariff was also implemented to protect American industries.

For much of the country’s early history, tariffs provided the main source of revenue for the federal government. In those days, discussions around tariffs differed along political lines. Democrats favored tariffs as a means to pay for the cost of government, but did not want tariffs beyond that. Whigs and Republicans tended to favor high tariffs, as a way to protect American industries and workers.

When a federal income tax was introduced in 1913, tariffs became less important with regards to government funding. Throughout much of the 20th century, tariffs were low and not much of a partisan debate.

Why Do We Have Tariffs?

There are many reasons for why we have tariffs today. For one, tariffs can provide a government with a source of additional revenue. Many also believe that tariffs level the playing field when it comes to international trading partners.

High tariffs are sometimes seen as a way to fuel the growth of a country’s domestic producers by offering more return on their investments. Others cite high tariffs as a way for countries to place more emphasis on jobs “in-house,” rather than importing supposedly cheaper goods.

Not everyone supports tariffs, however. There are those that feel high tariffs discourage an international free market, and are ultimately harmful to global economies.

Tariffs Today

Today, tariffs get mentioned in the news often. The issue became a hot-button topic during the 2016 Presidential election, when then-candidate Donald Trump used the issue in campaign speeches to coal and steel workers. His stance on tariffs stood in contrast to many Clinton-era trade policies, including some that Republicans had supported for decades.

On July 6th, 2018, President Trump issued a long list of new tariffs on Chinese goods. It is expected that China will retaliate with tariffs of their own. While this might seem like just another day in the history of tariffs, many fear this will set the stage for a “trade war” between China and the U.S. Supporters of the tariffs feel that the President is acting in the best interest of American laborers.

For now, we’ll just have to wait and see how this all plays out.

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