A tariff is a tax placed on products that are traded internationally.
It raises the cost of a product to the importer which discourages the consumer from purchasing the product.
e.g. if a store owner is importing shoes, a tariff collected by her government might add to the price she has to pay for them.
In the past, exporting to Pakistan was difficult. The country’s import duties ranged from 20-90% and were subject to a 5% education tax, a 6% import license fee, a 12.5% sales tax, and a 10% import surcharge tax.
There has been a global effort to reduce tariffs around the world because they make goods more expensive for businesses and consumers.
In certain circumstances, some governments consider tariffs helpful as a policy tool – they raise revenues and protect local industry from foreign competition (in the shoe example, a locally produced shoe might be cheaper than the imported one with a tariff).
A Scientific Tariff – brings the price of an imported product up and levelling the playing field for domestic producers. (consumer loses here)
Peril Point Tariff – levied to save a domestic industry that has deteriorated to the point that it may not survive.
A Retaliatory Tariff – levied in response to a tariff imposed by a trading partner
Under the World Trade Organization (WTO) agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour - such as a lower tariff rate for a product - and you have to do the same for all other WTO member countries.
MFN or Most Favoured Nation means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners.