A:

Tariffs are essentially taxes or duties placed on an imported good or service by a domestic government, making domestic goods cheaper for domestic consumers and imported goods more expensive for companies exporting goods from their industry into the domestic industry.

Tariffs are normally levied by a domestic government as a percentage of the declared value of the good or service and act similar to a sales tax. Unlike sales tax, however, tariff rates often vary depending on the good or service and do not apply to domestic goods, only imports coming into the domestic industry.

When high tariffs are levied by a domestic government, it reduces the imports of a given product or service because the high tariff leads to a higher price for the domestic consumer and a higher import cost for foreign suppliers or producers. Tariffs are also used to create favorable trading conditions between certain countries, while hampering the trading conditions of other countries.

There are two general types of tariffs levied by domestic governments: ad valorem tax and a specific tariff. Ad valorem tax is a percentage of the value of the good or service, while a specific tariff is a tax based on a set fee per number of items or weight of the items.

Tariffs are usually levied by domestic governments to protect new industries against foreign competition, to protect aging industries against foreign competition, to protect against foreign companies offering their products for a price lower than their costs and to raise revenue.

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