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Protective Tariffs

Definition

Protective tariffs are taxes imposed on imported goods with an aim to protect domestic industries from foreign competition by making imported goods more expensive.

Analogy

Imagine you're selling lemonade at your neighborhood stand. Suddenly someone starts selling cheaper lemonade right next door! Your parents impose a rule that anyone else selling lemonade has to pay them first (a tariff), making their lemonade more expensive than yours. That's what protective tariffs do on a larger scale!

Related terms

Tariff of Abominations (1828): This was an extremely high tariff that led to significant controversy because Southern states felt it unfairly benefited Northern manufacturers at their expense.

Smoot-Hawley Tariff Act (1930): An act passed during Great Depression which raised U.S. tariffs on over 20,000 imported goods leading global trade decline.

Free Trade Agreement: These are treaties between two or more countries to establish a free trade area where commerce in goods and services can be conducted across their common borders, without tariffs or hindrances.