A protective tariff is a financial decision by a government to apply a tax on the importation of foreign goods. Many times, this tariff is used to inflate import prices in order to protect the value of domestic merchandise that can be produced in the home country. This type of tariff is considered a threat to free trade by some, but others claim its benefits are twofold. The first is keeping domestic money within its own economy. The second benefit is preventing inexpensive imports from destroying local business.
An example of a protective tariff is seen in the importation of oranges. Citrus fruit does not readily grow everywhere, and South American countries often produce massive quantities for export. If a country can produce oranges but can import them from South America cheaper than growing them domestically, a protective tariff might be applied. This tariff will inflate the price of the imported oranges so that they are equal to or higher than the price of domestic oranges.
Some argue that dealing with imports in this manner is unethical. They claim that the cost of shipping should be the only addition to an item's price. Applying protective tariffs, the argument states, threatens the idea of having free trade.
On the opposite end of the spectrum are two arguments in favor of protective tariffs. One is that it keeps money earned locally within the domestic economy. The idea being that if a man earns a paycheck from a local business, he should feed that money back into other local businesses, creating a support cycle. By purchasing less expensive imported goods, that man is not giving his money to domestic business but straight to foreign economies. This, in theory, creates a hollow economy that does more to support foreign business and less to support itself.
The second argument in favor of a protective tariff is that it prevents unfair import competition. This viewpoint states that if South American oranges were imported without a tariff and at a much lower cost than domestic oranges, consumers would purchase those over more expensive domestic oranges. This would put a strain on domestic orange growers and possibly put them out of business. In this case, a protective tariff is meant to level competition for domestic businesses.
Protective tariffs are controversial plans to deal with the importation of goods. Some see these import taxes as a necessary means of protecting a domestic economy. Others believe it is a threat to free trade.
