A tariff is a tax imposed on the import or export of goods. In general parlance, however, it refers to "import duties" charged at the time goods are imported. Tariffs have three primary functions: to serve as a source of revenue, to protect domestic industries, and to remedy trade distortions (punitive function).
What is an example of a tariff?
A specific tariff is a fixed amount of money that does not vary with the price of the good. In some cases, both the ad valorem and specific tariffs are levied on the same product. For example, Company XYZ produces cheese in Scotland and exports the cheese, which costs $100 per pound, to the United States.
How does a tariff work?
BREAKING DOWN 'Tariff' Tariffs are used to restrict imports by increasing the price of goods and services purchased from overseas and making them less attractive to consumers. Governments may impose tariffs to raise revenue or to protect domestic industries – particularly nascent ones – from foreign competition.