A tariff rate is a type of tax that is charged by a particular country on the services and goods that are imported from foreign countries, and the government usually uses it to elevate the price to make the imports of these services and goods to be less attractive and competitive compared to the local services and goods.

The main purpose of a tariff rate is to limit the trade activities from foreign countries or lower the importation of a particular type of service or goods. For instance, in order for the government to reduce the purchase of Italian leather shoes, they can introduce a tariff rate of 80%, which will result in the price of this product increasing so high that other domestic options would be far more affordable to the local customers.

The end result that the government is hoping for is that the local people would prefer to buy domestic services and goods instead of the imported ones. There are two types of tariffs, and they are specific and ad-valorem tariffs. The specific tariff is usually charged as a one-time fee based on the type of goods, for instance, the $2000 tariff that is charged on a car.

Tariff Rate

On the other hand, the ad-valorem tariff is charged based on the value of the goods, such as 20% of the value of the car. One of the major reasons why governments would introduce these tariffs is to either protect the domestic industries that have recently proved to have the potential to grow in the future from the rapid growth of foreign competitors or to raise revenue.

By increasing the price of foreign goods to make it more expensive, tariffs can make domestic services and goods to be much more attractive hence driving healthy growth to the local industries.

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