Tariffs, defined by Merriam-Webster as charges imposed by governments on imported or exported goods, have been used since ancient times to protect domestic businesses that compete with foreign manufacturers. In theory, the increased cost of bringing foreign goods into the country will translate into higher sales of domestic products. However, tariffs in the real world can harm the buying public and may sometimes even harm the very companies they are supposed to protect.
According to the "Concise Encyclopedia of Economics," some economists believe that international trade, unimpeded by tariffs and other artificial barriers, improves the economic condition of all trading partners. Theoretically, if countries are left to specialize in products that they can produce less expensively and more efficiently by virtue of their natural resources, location or other domestic advantage, consumers of the world will benefit from the lower prices and producers will benefit from the unfettered world market for their goods.
Retaliation and Reciprocal Trade
Often, when tariffs are imposed on goods from a certain country, that country will retaliate with tariffs of its own. This bilateral trade warfare can severely limit trade between the two nations, possibly halting it altogether. In the late 1920s and early 1930s, rising tariffs among the world’s nations had so severely limited international trade that President Roosevelt began negotiating the mutual lowering of such trade barriers with America’s international trading partners. These negotiations eventually led to Congress’ passage of the Reciprocal Trade Agreements Act in 1934, which lowered tariffs and demonstrated America’s commitment to freer trade.
Favoring the Few
Protectionism in the form of tariffs, quotas and other trade barriers often benefits one sector at the expense of others. According to the "Concise Encyclopedia of Economics," even after factoring in the gains to workers and companies that benefit from protectionism of the American textile industry, the net loss to the United States economy caused by these policies was approximately $12 billion in 2002 alone. However, American textile companies are able to persuade Congress to continue the policies year after year.
Although tariffs are enacted to benefit domestic manufacturers and workers in certain industries, they may have the opposite effect. Because tariffs effectively remove foreign competition in a sector, prices for its goods may soar. If tariffs exist in many sectors, prices may rise across the board, leaving workers with less purchasing power. Additionally, domestic companies and employees that ostensibly benefit from tariffs may find other countries’ retaliatory protections a serious barrier to international market expansion.