Tariff is a specific kind of tax. It is usually placed on imported goods and each country has separate tariff laws. Tariff is one of the oldest trade policies in effect (Hill, 2004). There are five main types of tariffs; specific, ad valorem, revenue, prohibitive, and protective.
A specific tariff is imposed as a fixed charge per unit of imports. For instance, if a specific tax of 50 cents were applied to a handbag then the government would receive 50 cents from every handbag coming into the United States regardless the price of a Hérme handbag that cost $2000 or a Wal-mart handbag that cost $20. An ad valorem tax is applied at a fixed percentage of the value of the import. Therefore, if there were a two percents tax imposed against the handbags then $40 would be gained in tariff revenue on each $2000 Hérme handbag and only 40 cents on the $20 Wal-mart handbag. Sometimes, a specific and ad valorem tariff is imposed on the same product at once (Saranovic, 1997-2008).
Revenue tariffs are related to government funds. An example of a revenue tariff is a product which is not made or grown in a country; however, the country creates a tariff on the specific product so the government would make money from the business importing that product. A prohibitive tariff is one that is such as high cost that it keeps the item from being imported (Cyprus, 2008). A protective tariff is aim to artificially inflate prices of imports and protect domestic industries from foreign competition. Protective tariffs are placed on local goods and are believed to be helpful for the local economy; however, this backfire in some cases and the business has to charge more. For example, gas prices become high the airline industry has to pay more for gas, so they have to charge the consumers a ...