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See also Protective Tariffs for the policies of using tariffs, and tariff (disambiguation) for other uses.

A tariff is a tax on imports or exports (an international trade tariff). In other languages and very occasionally in English, "tariff" or its equivalent may also be used to describe any list of prices (electrical tariff, etc.).


The small Spanish town of Tarifa is sometimes credited with being the origin of the word "tariff", since it was the first port in history to charge merchants for the use of its docks[1] The name "Tarifa" itself is derived from the name of the Berber warrior, Tarif ibn Malik. However, other sources assume that the origin of tariff is the Italian word tariffa translated as "list of prices, book of rates," which is derived from the Arabic ta'rif meaning "making known" or "to define".[2]

Customs duty[edit]


In the Kingdom of England, customs duties were typically part of the customary revenue of the king, and therefore did not need parliamentary consent to be levied, unlike excise duty, land tax, or other forms of taxes. This is no longer the case.

Calculation of customs duty[edit]

Customs duty is calculated on the determination of the assessable value in case of those items for which the duty is levied ad valorem. This is often the transaction value unless a customs officers determines assessable value in accordance with the Harmonized System.


Harmonized System of Nomenclature[edit]



Customs authority[edit]


Evasion of customs duty[edit]

Main article: Tax avoidance


Duty-free goods[edit]


Duty calculation for companies in real life[edit]



Economic analysis[edit]


Neoclassical economic theorists tend to view tariffs as distortions to the free market. Typical analyses find that tariffs tend to benefit domestic producers and government at the expense of consumers, and that the net welfare effects of a tariff on the importing country are negative. Normative judgements often follow from these findings, namely that it may be disadvantageous for a country to artificially shield an industry from world markets and that it might be better to allow a collapse to take place. Opposition to all tariff aims to reduce tariffs and to avoid countries discriminating between differing countries when applying tariffs. The diagrams to the right show the costs and benefits of imposing a tariff on a good in the domestic economy.

When incorporating free international trade into the model we use a supply curve denoted as P_{tariff} (Diagram 1.) or P_{w} (Diagram 2.). This curve makes the assumption that the international supply of the good or service is perfectly elastic and that the world can produce at a near infinite quantity of the good. Before the tariff, there is a demand of Qc1 (diagram 1) or D (diagram 2). The difference in demand (between S and D on diagram 2) was filled by importing from abroad. This is shown on diagram 1 as Quantity of Imports (without tariff). After the imposition of a tariff, domestic price rises, but foreign export prices fall due to the difference in tax incidence on the consumers (at home) and producers (abroad).

The new price level at Home is Ptariff or Pt, which is higher than the world price. More of the good is now produced at Home – it now makes Qs2 (diagram 1) or S' (diagram 2) of the good. Due to the higher price, only Qc2 or D* of the good is demanded by Home. The difference between the supply and demand is still filled by importing from abroad. However, the imposition of the tariff reduces the quantity of imports from SD to S*D* (diagram 2). This is also shown on Diagram 1 as Quantity of Imports (with tariff).

Domestic producers enjoy a gain in their surplus. Producer surplus, defined as the difference between what the producers were willing to receive by selling a good and the actual price of the good, expands from the region below Pw to the region below Pt. Therefore, the domestic producers gain an amount shown by the area A.

Domestic consumers face a higher price, reducing their welfare. Consumer surplus is the area between the price line and the demand curve. Therefore, the consumer surplus shrinks from the area above Pw to the area above Pt, i.e. it shrinks by the areas A, B, C and D. This includes the gained producer surplus, the deadweight loss, and the tax revenue.

The government gains from the taxes. It charges an amount PtPt' of tariff for every good imported. Since S*D* goods are imported, the government gains an area of C and E. However, there is a Deadweight loss of the triangles B and D, or in Diagram 1, the triangles labeled Societal Loss. Deadweight loss is also called efficiency loss. This cost is incurred because tariffs reduce the incentives for the society to consume and produce.

The net loss to the society due to the tariff would be given by the total costs of the tariff minus its benefits to the society. Therefore, the net welfare loss due to the tariff is equal to:

Consumer Loss – Government revenue – Producer gain

or graphically, this gain is given by the areas shown by:

 (A+B+C+D)-(C+E)-A = B+D-E

That is, tariffs are beneficial to the society if the area given by the rectangle E is greater than the deadweight loss. Rectangle E is called the terms of trade gain.

The model above is completely accurate only in the extreme case where no consumer belongs to the producers group and the cost of the product is a fraction of their wages. If the opposite extreme is taken, assuming that all consumers come from the producers' group, consumers' only purchasing power comes from the wages earned in production, and the product costs their whole wage, the graph looks radically different. Without tariffs, only those producers/consumers able to produce the product at the world price will have the money to purchase it at that price.[citation needed]

Political analysis[edit]


The political impact of tariffs is judged depending on the political perspective,; for example the 2002 United States steel tariff imposed a 30% tariff on a variety of imported steel products for a period of three years and American steel producers supported the tariff.[4] The move was criticised by the Cato Institute, a libertarian think tank.[5]

Tariffs can emerge as a political issue prior to an election. In the leadup to the 2007 Australian Federal election, the Australian Labor Party announced it would undertake a review of Australian car tariffs if elected.[6] The Liberal Party made a similar commitment, while independent candidate Nick Xenophon announced his intention to introduce tariff-based legislation as "a matter of urgency".[7]


Tariffs within technology strategies[edit]


This is related to the Infant industry argument.



See also[edit]


  3. ^ "Thomas Jefferson - under George Washington by America's History". americashistory.org. Archived from the original on August 29, 2011. 
  4. ^ "Behind the Steel-Tariff Curtain". March 8, 2002. 
  5. ^ "Trade Briefing Paper no. 14. Steel Trap: How Subsidies and Protectionism Weaken the U.S. Steel Industry". Cato's Center for Trade Policy Studies. 
  8. ^ (Spanish) Primeros movimientos sociales chileno (1890-1920). Memoria Chilena.
  9. ^ Benjamin S. 1997. Meat and Strength: The Moral Economy of a Chilean Food Riot. Cultural Anthropology, 12, pp. 234-268.

Further reading[edit]

External links[edit]