A protective tariff is a tax on imported goods to protect domestic merchandise. It is controversial, with some arguing it is unethical and a threat to free trade, while others say it keeps money within the national economy and prevents unfair competition for domestic companies.
A protective tariff is a financial decision by a government to apply a tax to the importation of foreign goods. Many times, this tariff is used to inflate import prices in order to protect the value of domestic merchandise that can be produced in the country of origin. This type of tariff is seen as a threat to free trade by some, but others say its benefits are two-fold. The first is to keep internal money within your own economy. The second benefit is preventing cheap imports from destroying local businesses.
An example of a protection tariff is seen in the importation of oranges. Citrus does not grow easily everywhere, and South American countries often produce massive quantities for export. If a country can produce oranges but can import them from South America cheaper than growing them domestically, a protective tariff could apply. This tariff will inflate the price of imported oranges to be equal to or higher than the price of domestic oranges.
Some argue that treating imports in this way is unethical. They claim that the cost of shipping should be the only addition to the price of an item. The application of protective tariffs, according to the argument, threatens the idea of having free trade.
At the opposite end of the spectrum there are two arguments in favor of protection fees. One is that it keeps locally earned money within the national economy. The idea is that if a man earns a paycheck from a local business, he should feed that money to other local businesses, creating a cycle of support. By buying less expensive imported goods, that man is not giving his money to domestic companies but directly to foreign economies. This, in theory, creates a hollow economy that does more to support foreign companies and less to support itself.
The second argument in favor of a protective tariff is that it prevents unfair import competition. This view states that if South American oranges were imported without a tariff and at a much lower cost than domestic oranges, consumers would buy the more expensive domestic oranges. This would strain domestic orange growers and possibly put them out of business. In this case, a protection fee is intended to level competition for domestic companies.
Protective tariffs are controversial schemes to deal with the importation of goods. Some view these import taxes as a necessary means of protecting a domestic economy. Others believe that it is a threat to free trade.
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