Effect of Tariffs on Handloom Products

Abstract

A tariff is a tax or duty imposed by one nation on the imported goods or services of another nation. Tariffs are a political tool that have been used throughout history to control the amount of imports that flow into a country and to determine which nations will be granted the most favorable trading conditions. High tariffs create protectionism, shielding a domestic industry's products against foreign competition. High tariffs usually reduce the importation of a given product because the high tariff leads to a high price for the customers of that product. There are two basic types of tariffs imposed by governments on imported goods. First is the Ad Valorem tax which is a percentage of the value of the item. The second is a Specific Tariff which is a tax levied based on a set fee per number of items or by weight. Tariffs are generally imposed for one of four reasons: to protect newly established domestic industries from foreign competition; to protect aging and inefficient domestic industries from foreign competition; to protect domestic producers from "dumping" by foreign companies or governments. Dumping occurs when a foreign company charges a price in the domestic market which is below its own cost or under the cost for which it sells the item in its own domestic market; to raise revenue. Many developing nations use tariffs as a way of raising revenue.