Tariffs is the word that has been on our minds the most in recent days and weeks since the inauguration of Donald Trump. In this article, we take a closer look at what tariffs mean and who they actually affect.
Why do countries actually impose tariffs?
There are many reasons for countries to impose tariffs on imported goods. The three main reasons are: Economic, protectionist and fiscal motives.
1. economic reasons:
Protection of domestic industry (protectionism): This is one of the most common reasons. Tariffs increase the cost of imported goods, making them more expensive on the domestic market than domestically produced goods. This is intended to protect local companies from foreign competition, especially young or strategically important industries (“infant industry argument”). The aim is to give these companies time to become competitive.
Compensation for unfair competition: States can impose tariffs to compensate for unfair trade practices, such as dumping (selling goods abroad below production costs or below the price in the home market) or state subsidies in the exporting country that give foreign producers an unfair advantage. These duties are intended to create fair competitive conditions (“anti-dumping duties” and “countervailing duties”).
Promoting economic diversification: Tariffs can be used to reduce dependence on certain imports and promote the development of new domestic industries.
Improving the balance of trade: By making imports more expensive and making domestic products relatively more attractive, tariffs can help to reduce a country’s trade deficit (if imports exceed exports). However, this effect is often controversial and can lead to countermeasures by other countries.
2. fiscal reasons:
Generation of government revenue: Customs duties represent a direct source of revenue for the state. In some developing countries, import duties can be a significant component of government revenue. In developed countries, this aspect is generally less significant compared to other tax sources.
3. political and social reasons:
a) Protection of jobs: By protecting domestic industry from foreign competition, the aim is to maintain or create jobs at home. However, it is debatable whether tariffs actually lead to a net increase in jobs in the long term, as they can also have a negative impact on other sectors (e.g. higher prices for consumers and intermediate products for other industries).
b)National security: In strategically important sectors such as defense, energy or agriculture, tariffs or other trade restrictions can be used to reduce dependence on foreign suppliers and ensure national security.
c)Health and safety: Tariffs or trade restrictions can also be used to prevent the import of goods that do not meet the health or safety standards of the importing country.
d)Retaliation: A state may impose tariffs in response to unfair trade practices or protectionist measures by other countries (“retaliatory tariffs”).
In summary, countries impose tariffs on imported goods for a complex mix of economic, fiscal and political reasons. While some of these reasons are aimed at protecting the domestic economy and ensuring fair competition, others may pursue protectionist goals or simply serve to generate government revenue. It is important to note that tariffs can also have negative effects. Higher prices for consumers, a reduction in the choice of goods and possible countermeasures by other countries. This can lead to trade wars.
But who has to pay the Tariffs?
It is a widespread opinion that the country that has been burdened with tariffs must pay the tariffs imposed. That is totally wrong.
The basic principle is: The Customer pays for the Tariffs!!!
If you, as a private consumer, buy goods from abroad and receive them, you are automatically the importer of these goods. You are therefore directly responsible for paying customs duties to the customs authorities in your homeland. They will also impose them directly on you.
If you, as a private customer, buy goods in your home country, whether in a store or on the Internet, and these goods were originally imported from abroad, then you as the customer also pay the custom duties in the form of higher prices.
Tariffs within the European Union
The basic idea of the European Union was originally a peace project. Never again should there be war between European countries in Europe. Another major effect, in addition to peace, is free trade within the EU. There are no customs duties within the EU and therefore goods and services within the EU are duty-free. This has contributed significantly to increasing the prosperity of every single EU citizen.
What is important to know for Arollo Customers who are located outside of the European Union?
If you order boots from outside the EU in our Online Shop, find out in advance about the amount of customs duties that are due in addition to the purchase price when importing. The easiest way to do this, is to visit the website of the customs authority in your home country. There you should find all the important information about importing goods and the associated tariffs.