Specific Tariffs

Definition

A specific tariff is a fixed monetary charge imposed on a good based on the quantity or weight of the imported product, rather than the value of the product. It is a type of trade barrier used by governments to protect domestic industries from foreign competition.

5 Must Know Facts For Your Next Test

1. Specific tariffs are designed to raise the price of imported goods, making domestic products more competitive.
2. Unlike ad valorem tariffs, specific tariffs do not change with the value of the imported good, providing more predictable revenue for the government.
3. Specific tariffs can be more effective at protecting industries that produce homogeneous, low-value goods, such as agricultural products.
4. Specific tariffs can distort market signals and lead to inefficient resource allocation by shielding domestic producers from foreign competition.
5. The use of specific tariffs has declined in recent decades as more countries have moved towards ad valorem tariffs and other trade liberalization measures.

Review Questions

• Explain how specific tariffs differ from ad valorem tariffs and the advantages they offer governments.
  • Specific tariffs are a fixed monetary charge per unit of an imported good, whereas ad valorem tariffs are a percentage of the good's value. The key advantage of specific tariffs is that they provide a more predictable revenue stream for the government, as the tariff amount does not fluctuate with the value of the imported product. This can be particularly useful for protecting industries that produce homogeneous, low-value goods, such as certain agricultural products. However, specific tariffs can also distort market signals and lead to inefficient resource allocation by shielding domestic producers from foreign competition.
• Describe the relationship between specific tariffs and the concept of protectionism.
  • Specific tariffs are a common tool used by governments as part of protectionist economic policies. By imposing a fixed monetary charge on imported goods, specific tariffs raise the prices of foreign products, making domestic goods more competitive. This protects domestic industries from foreign competition and helps preserve jobs and market share for local producers. Protectionism, of which specific tariffs are a key component, is often criticized for distorting market forces and leading to inefficient resource allocation, but it remains a popular policy tool for governments seeking to support their domestic industries.
• Analyze how the use of specific tariffs relates to the economic principle of comparative advantage.
  • The use of specific tariffs runs counter to the economic principle of comparative advantage, which states that countries should specialize in the production of goods they can make most efficiently and trade for other goods. By imposing specific tariffs, governments are artificially raising the prices of imported goods, effectively shielding domestic producers from foreign competition, even if those foreign producers have a comparative advantage in producing the good. This can lead to a misallocation of resources, as domestic producers are incentivized to continue producing goods they are less efficient at making, rather than focusing on their areas of comparative advantage. Over time, the use of specific tariffs and other protectionist measures can undermine the gains from trade and reduce overall economic efficiency.

Related terms

Ad Valorem Tariff: A tariff that is charged as a percentage of the value of the imported good, rather than a fixed monetary amount per unit.

Protectionism:

Economic policies that restrict or regulate trade between nations in order to protect domestic industries and jobs.

Comparative Advantage:

The ability of a country to produce a good more efficiently than another country, leading to specialization and trade.