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Monthly ArchiveMarch 2018

U.S. Tariffs Unlikely to be Beneficial

U.S. Tariffs Unlikely to be Beneficial

A tax on an imported good is a tariff. Businesses losing market share due to imports often petition their government to impose a tariff on imports. A tariff, however, raises the relative domestic price above the relative world price by the amount of the tariff, making the good more profitable for the inefficient business and costlier to domestic consumers. When the domestic relative price of the good is higher than the relative world price, production inefficiency occurs.