A tariff is a name given to a tax that is placed on imported goods. Each country posses separate tariff regulations.

Types of Tariff

The five main types of tariffs include:

• revenue,
• ad valorem,
• specific,
• prohibitive and
• protective.

Revenue Tariff

Government funds are increased by a revenue tariff. For instance, a tariff can be created by those countries that do not grow bananas by importing bananas.

The government would then make money from those businesses that import bananas.

Ad Valorem Tariff

An ad valorem is the name given to that tariff that applies to a percentage of the import’s value such as a set number of cents on every dollar of value.

Specific Tariff

On the contrary, a specific tariff,  means that tariff that is not concerned with the estimated value of the imported goods, but rather than that it is based on specific amount of the goods. A specific tariff might be applied to the number of goods that are imported or to the weight, volume or other measurement of the goods.

Prohibitive Tariff

A prohibitive tariff is that tariff whose is having such a high cost that it keeps the item from being imported.

In order to raise the price of imported goods a protective tariff is used as a protective measure against the competition from foreign markets. By a higher tariff a local company is allowed to compete with foreign competition.

Protective Tariff

Protective tariffs can be advantageous as they can help foster the local economy, but sometimes by them the prices of the item are made so expensive that the companies must charge more. For instance, when gas prices become too high, industries such as the trucking industry might be charging retailers more for delivering products. The retail industry then has to increase the price of their items to allow for their increased transportation costs in order to make the same profit that was made by them earlier. The end result is that consumers have to pay more for the goods.

Free Trade

When on imported goods no tariff or other restrictions are placed then it is called free trade. Some people consider that by free trade increased economic growth potential is allowed. Others counter that due to the removal of  the tariffs to permit free trade only makes the economy rather than increasing the stability of domestic markets depend on global markets .

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