Protective Tariffs: Definition & Explanation

Protective Tariffs: Definition & Explanation
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  • 0:00 What Are Protective Tariffs?
  • 1:28 Real-World Examples
  • 3:30 Lesson Summary
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Lesson Transcript
Instructor: Christopher Sailus

Chris has an M.A. in history and taught university and high school history.

In this lesson we explore protective tariffs, a tool used by many countries today and throughout history to protect domestic industries from cheap, foreign products.

What Are Protective Tariffs?

Most countries try to protect their own. For example, when political strife or civil war breaks out in a part of the world, many nations warn their citizens against travel to the area and will even pay to transport their citizens out of the troubled region. Just like these nations try to protect their people, most are heavily invested in protecting their industry too. To protect their businesses and local markets from foreign competition, countries have one very potent tool they can utilize: the protective tariff.

Protective tariffs are taxes, duties, or other roadblocks (generally in the form of monetary fees) placed on foreign goods by a national or state government in order to protect domestic products and markets. The increased fees levied on foreign goods are generally passed on to the consumer, making the foreign goods considerably more expensive than similar goods produced within the country.

This system is designed to encourage consumers to purchase more domestic products and in the process, prop up domestic industries that would otherwise go bankrupt because of the availability of cheaper foreign products. Furthermore, with consumers buying more domestic goods in response to higher import prices, more currency remains in domestic circulation. Despite these benefits, protective tariffs are largely decried by free market economists who see those tariffs as economically unethical and as an artificial restraint on world market forces.

Real-World Examples

Protective tariffs have been utilized to protect domestic industries and currencies throughout world history, including in many states today. One such example is mid-1970s Italy. In 1974, Italy introduced aggressively protective tariffs across an array of products. Imports from many European countries, specifically Germany, were subject to high tariffs, especially on automobiles and food. While the new measures bolstered local farmers and the Italian auto industry, the protective tariffs caused sharp rises in the price of food and other goods and a general decrease in the standard of living of average Italians.

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