What is a protective tariff?

A protective tariff is a tax or duty imposed on imported goods to protect domestic industries from foreign competition by making the imported goods more expensive compared to locally produced goods. The main purpose of protective tariffs is to shield domestic industries from being undercut by cheaper foreign goods, thereby promoting economic growth, job creation, and preserving a country's economic independence.

Protective tariffs can be implemented in various ways, such as ad valorem tariffs (based on a percentage of the value of the imported goods) or specific tariffs (a fixed amount per unit of the imported goods). The level of the tariff can be set by the government to achieve specific economic goals, such as encouraging domestic production, reducing trade deficits, or protecting strategic industries.

Critics of protective tariffs argue that they can lead to higher prices for consumers, limit choices, and create inefficiencies in the economy by shielding domestic industries from competition. Additionally, retaliatory tariffs imposed by other countries in response to protective tariffs can result in trade wars and disrupt global supply chains.

Overall, protective tariffs are a controversial trade policy tool that can have both positive and negative effects on domestic industries, consumers, and the overall economy.