Governments may impose tariffs to raise revenue or to protect domestic industries from foreign competition, since consumers will generally purchase foreign-produced goods when they are cheaper.
A tariff is a tax on imports or exports. Money collected under a tariff is called a duty or customs duty. Tariffs are used by governments to generate revenue or to protect domestic industries from competition.
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Import and export taxes make it more expensive for users of foreign goods, causing a decline in imports, a decline in the supply of the good, and a resulting increase in the price of the good. The price increase usually motivates domestic producers to increase their output of the product.
Some economists argue that the resulting higher consumer prices, higher producer revenues and profits, and higher government revenues make tariff s a way to effectively transfer money from consumers to government treasuries. Some economists also argue that tariffs interfere with free market ideals by diverting resources to domestic industries that are less efficient than foreign producers.