Describe the effects of protective tariffs. Why might a government limit free trade in this way?
I know that a protective tariff is designed to protect a domestic industry but i can't figure out the rest of the question.
Governments impose tariffs on imported goods so that people will buy goods made in their own country.
The effects of protective tariffs can vary depending on the specific circumstances and industries involved. However, there are a few common effects that are often observed:
1. Protecting domestic industries: Protective tariffs are intended to make imported goods more expensive than domestically produced goods, which can help protect domestic industries from competition. By increasing the price of imported goods, domestic industries may have a better chance of competing and staying in business.
2. Increasing government revenue: Tariffs can also generate revenue for the government. When imported goods are subject to tariffs, the government collects additional taxes on those goods. This revenue can be used to support various government activities, such as public infrastructure development or social programs.
3. Consumer impact: One of the main downsides of protective tariffs is that they can lead to higher prices for consumers. When imported goods become more expensive due to tariffs, consumers may have to pay more for those goods. This can reduce consumer welfare and purchasing power.
4. Trade tensions and potential retaliation: Implementing protective tariffs can also lead to trade tensions between countries. If one country imposes tariffs, other countries may respond with their own tariffs, leading to a trade war. This can result in reduced international trade and negatively impact the overall global economy.
Now, the reason why a government might limit free trade by imposing protective tariffs is often driven by certain motives. Here are a few common reasons:
1. Protecting domestic industries and jobs: Governments may impose tariffs to protect domestic industries and jobs from foreign competition. By making imported goods more expensive, domestic industries may have a better chance to grow and create employment opportunities.
2. National security considerations: Some countries may impose tariffs on certain goods that are considered strategically important for national security reasons. By limiting imports of those goods, countries aim to maintain control over critical sectors and reduce dependency on other nations.
3. Infant industries and economic development: Protective tariffs can also be used to support the development of fledgling domestic industries. By shielding them from international competition, these industries have the opportunity to grow and become competitive in the long run.
4. Correcting trade imbalances: In some cases, governments may use tariffs as a tool to address trade imbalances with specific countries. By imposing tariffs, they aim to reduce imports from certain countries and promote domestic production and exports.
It's important to note that while protective tariffs may have some short-term benefits, they can also have negative consequences, such as higher consumer prices and trade tensions. Therefore, governments must carefully assess the potential costs and benefits before implementing such measures.