In the United States the price of imported goods can include a tariff, or tax, placed on them in accordance with the economic policy of the federal government. A tariff on an imported goods affects supply and demand, producers, consumers and the world market by creating advantages and disadvantages for the concerned parties. Placing a tariff on an imported good has a number of clear outcomes that can be advantageous to some parties while being a significant disadvantage to others.
Promotes American Products
When the US government chooses to place a tariff on an imported good, the producer can choose to reduce their price to compensate for the tariff or to pass on the cost to the consumer. When producers choose to pass on the cost to American consumers by increasing their price, it promotes American products. If American companies are producing a similar product at a similar price point, the foreign product becomes more expensive. In turn, consumers opt for the less expensive option and purchase the American product, giving American companies a clear advantage.
Increased Goverment Revenue
The US government collects revenue in order to economically support its function. Increased government revenue appears as a clear advantage to the US placing import tariffs on foreign goods. As of 2008, customs and import duties account for approximately 2 percent of government revenue. However, the small percentage brought in by import tariffs equal a hefty 29.2 billion dollars.
One of the cornerstones of macroeconomics is that individuals, businesses and governments will avoid a tax. When American consumers choose to buy a lower-priced American product, foreign producers become disadvantaged, ultimately leading to less trade with the US. Foreign producers are forced to reduce their prices to compete with similar American products. They may choose not to trade as much with the US and import their products to other countries where there are no tariffs. A reduction in trade causes producers to make less of their product which could mean workers losing jobs in the producing country.
Reduces Consumer Choice
Individual consumer choice remains as one of the greatest consumer benefits to international trade. When tariffs are placed on imported goods, the increased prices and reduced trade prohibit individuals from all choices that could be available in the market. In the event that American companies do not produce a product similar to the imported good, consumers may be robbed of the opportunity to purchase a product altogether because they pushed a foreign product out of the market with a tariff.