What Are the Pros and Cons of Tariffs?

Tariffs are generally used to protect domestic manufacturers from overseas competition offering cheaper goods. The higher prices of imported goods due to tariffs often causes foreign producers to elect to withdraw from the domestic market, reducing competition. This lack of competition removes the incentive from domestic producers to find ways to lower the prices of their goods, resulting in higher overall prices for consumers, as well as a lack of innovation that competition often causes.

Tariffs also have a negative impact on the trade balance with countries against which they are used. Foreign nations often impose their own tariffs in response to domestic tariffs, raising the prices of exported gods, which causes less demand for those goods overseas. This, in turn, results in a loss of profits for domestic producers who export goods, as well as a loss of possible jobs on the domestic front because producers must lower production or withdraw from the export market altogether.