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Protective Tariffs

Definition

Protective tariffs refer to taxes imposed by governments on imported goods with the aim of protecting domestic industries from foreign competition. These tariffs increase the cost of imported goods, making them less competitive compared to domestically produced alternatives.

Analogy

Think of protective tariffs as adding an extra fee when buying items online from international sellers. This fee makes those items more expensive compared to similar items available locally, encouraging people to support domestic businesses instead.

Related terms

Trade Deficit: A trade deficit occurs when imports exceed exports in terms of value. It reflects an imbalance in trade where a country is buying more goods from abroad than it is selling.

Comparative Advantage: Comparative advantage refers to a country's ability to produce a good or service at a lower opportunity cost compared to other countries. It determines which goods a country should specialize in producing and trading.

Import Quotas: Import quotas are restrictions on the quantity of certain goods that can be imported into a country. They limit the amount of foreign competition and protect domestic industries.