1. Introduction

1.1 Background and Purpose

In today’s rapidly accelerating globalization, international trade has become a key driver of economic growth and development. Economic ties between countries are increasingly close, and trade exchanges are becoming more frequent. In this context, trade policies are of paramount importance, with tariffs serving as an indispensable tool in international trade.
A tariff is a tax levied by a government on imported and exported goods when they pass through a country’s customs. The history of tariffs dates back centuries, evolving with the development of goods circulation and international trade. In the early days, tariffs were a major source of government revenue for many countries. For instance, in 1805, tariffs accounted for 90-95% of U.S. federal government revenue, and in 1900, it still accounted for about 41%. Although tariffs now contribute a much smaller share of fiscal revenue in most developed countries, such as the U.S., where tariff revenue represented only about 2% of total government revenue in 1995, in some countries, tariffs remain an important part of fiscal income.
In addition to generating government revenue, tariffs play crucial roles in protecting domestic industries and adjusting trade balances. By imposing tariffs on imported goods, a country can increase the price of these goods, making them less competitive in the domestic market, thus providing some protection for domestic industries and promoting their development. When a country faces a trade deficit due to excessive imports, it can raise tariffs to reduce imports and improve the balance of payments. However, adjustments to tariff policies can also lead to various issues, such as trade friction and global economic imbalances. In recent years, the U.S. has frequently initiated trade wars, attempting to address its trade deficit by raising tariffs, but this has resulted in global trade tensions and negative impacts on stable world economic growth.

2. Basic Concepts of Tariffs

2.1 Definition of Tariffs

Tariffs (Customs Duties, Tariff) refer to the taxes levied by the government’s customs authority on import and export goods when they cross a country’s borders. The border is the area where the customs authority enforces tariff regulations, representing the territory where the nation’s tariff laws are fully implemented. When foreign goods enter the country or domestic goods are exported abroad, customs authorities collect corresponding taxes based on the country’s tariff policies and relevant laws. This tax behavior aims to regulate and manage international trade, while also contributing to the national fiscal revenue. For imported goods, the tariff raises their prices in the domestic market, affecting their competitiveness and market share. For exported goods, tariffs may influence the price and export volume of domestic products in the international market.

2.2 Features of Tariffs

2.2.1 Compulsory Nature

The compulsory nature of tariffs means that their collection is mandated by national laws and has legal binding force. The country enacts laws that specify the subjects, tax rates, collection procedures, and other aspects of tariff imposition. Importers and exporters must fulfill their tax obligations according to the law, or they will face legal penalties. This compulsory nature ensures the smooth collection of tariffs and protects the nation’s tax revenue. For instance, U.S. customs strictly regulate imported goods according to its tariff laws. Importers who fail to pay tariffs as required may face fines or have their goods confiscated. In international trade, any attempts to evade tariff payment are considered illegal and will be severely punished.

2.2.2 Gratuitous Nature

The gratuitous nature of tariffs means that the government does not refund the taxes collected from importers and exporters, nor does it provide any direct compensation in return. Tariffs are a form of fiscal revenue obtained by the state through its political power, which is used for public spending, economic development, social welfare, and other areas. Similar to other taxes, tariffs enable the government to concentrate resources for macroeconomic regulation and the provision of public services. The revenue from tariffs is used for infrastructure construction, improving transportation, energy, and other conditions, thus creating a favorable environment for economic development. These benefits are not directly returned to the importers and exporters who pay the tariffs.

2.2.3 Predefined Nature

The predefined nature of tariffs refers to the fact that the tax rate, scope of collection, and methods of levying tariffs are all specified in advance, and these details are published through laws, regulations, or policy documents. This characteristic allows importers and exporters to understand the tariff costs ahead of time, enabling them to plan their production, procurement, and sales activities accordingly. Countries set out detailed customs tariffs, clearly specifying the tariff rates for different products. Importers and exporters can calculate the tariff burden accurately based on the tariff schedule. The predefined nature also ensures fairness and stability in tariff collection, preventing arbitrariness and uncertainty from interfering with trade activities.

2.3 Differences Between Tariffs and Other Domestic Taxes

2.3.1 Different Objects of Taxation

The object of tariff collection is goods that cross the national border, limited to the realm of goods circulation that crosses the border. Tariffs are only imposed when goods enter or exit a country. Other domestic taxes, such as value-added tax (VAT), consumption tax, corporate income tax, etc., have a broader scope and cover domestic production, circulation, and consumption activities. For example, VAT is a turnover tax levied on the added value of goods produced, circulated, or provided with services at various stages. It applies not only to the added value of imported goods during domestic sales but also to the added value of domestically produced goods during production and sales. Consumption tax is imposed on specific consumer goods and behaviors, including products like tobacco, alcohol, and cosmetics. Regardless of whether they are produced domestically or imported, consumption taxes may apply when these goods are consumed domestically, though the scope and object of taxation differ from tariffs.

2.3.2 Taxpayer and Tax Burden Shifting

The taxpayer for tariffs is the importer or exporter, meaning that customs collect tariffs from them. However, importers and exporters often pass the cost of tariffs onto the product price, ultimately shifting the tax burden onto consumers. Due to the tariff, the price of imported goods increases, and consumers must pay higher prices when purchasing, thus bearing the cost of the tariff. In contrast, the taxpayers and the shifting of the tax burden for other domestic taxes are more complex. The taxpayer for corporate income tax is the business itself, which pays taxes based on its income. While businesses may adjust product prices to pass part of the tax burden onto consumers, this process is not as direct and obvious as with tariffs. VAT is levied on businesses or individuals who sell goods or provide processing, repair, and maintenance services, and on imported goods. While the final consumer bears the VAT burden, the tax is passed through different stages of the business process and paid by various operators, unlike tariffs, where the tax burden is more directly shifted.

2.3.3 External Nature

Tariffs have a strong external nature, being an important tool for national foreign trade policy. The formulation and adjustment of tariff policies not only affect a country’s import and export trade but also have significant impacts on international trade relations. By adjusting tariff rates, setting up tariff barriers, or implementing tariff preference policies, countries can achieve goals such as protecting domestic industries, adjusting trade balances, and promoting foreign trade. However, these adjustments can also trigger responses from other countries, affecting bilateral or multilateral trade relations. For example, when the U.S. raised tariffs on Chinese imports, it led to trade friction between the two countries and significantly impacted their economic and trade relations. Other domestic taxes primarily play a regulatory role within domestic economic activities, aiming to raise fiscal revenue, adjust domestic industrial structure, and redistribute income. While these taxes may have some effect on the relationship between domestic and international economies, they are not as directly and closely related to international trade and relations as tariffs.

3. Main Purposes of Tariffs

3.1 Protecting Domestic Industries

Tariffs are one of the key tools for protecting domestic industries, functioning mainly by increasing the cost of imported goods. When tariffs are levied on imported products, their prices rise, making domestic counterparts more competitive in terms of price. For example, imposing higher tariffs on imported cars will make their prices higher in the domestic market, increasing the cost for consumers. This leads them to prefer purchasing domestically produced cars, which are relatively cheaper. As a result, this creates more market space for the domestic automobile industry, reduces the market share of imported cars, and protects the domestic automotive sector from fierce foreign competition.

Tariffs also help protect emerging industries and nascent sectors. Emerging industries often face challenges such as immature technology, small production scales, and high costs during their early development stages, making it difficult to compete with mature industries abroad. By imposing tariffs, the government can raise the price of imported goods, creating a relatively relaxed environment for emerging industries to grow. This gives them the opportunity to gradually develop within the domestic market, accumulate technology and experience, reduce production costs, and improve competitiveness. Some countries, for example, have implemented tariff protection policies for their domestic new energy vehicle industries, which have, to some extent, facilitated rapid growth in these sectors, leading to significant advancements in technology, production scale, and market share.

However, there are certain limitations to tariff protection for domestic industries. Long-term reliance on tariff protection may result in domestic industries lacking competitive pressure, which can stifle innovation and lead to inefficiency in production. Excessive tariff protection may also trigger trade disputes, causing other countries to retaliate, which could affect the development of the country’s export industries. Therefore, when using tariffs to protect domestic industries, it is necessary to consider various factors and develop a balanced tariff policy to achieve both industry protection and enhanced international competitiveness.

3.2 Increasing Fiscal Revenue

Tariffs play an important role in generating additional income for the government and are a significant source of national fiscal revenue. This is particularly important in some developing countries where the economy is relatively simple and other tax sources are limited. In such countries, tariff income can account for a considerable proportion of fiscal revenue. By levying tariffs on imported and exported goods, these countries can secure stable fiscal funds, which can then be used for infrastructure development, public services, education, healthcare, and other sectors, thereby promoting economic growth and social progress. In the past, tariff revenue in some African countries accounted for 30% to 50% of their fiscal income, providing crucial financial support for economic construction and social development.

With economic development and the improvement of tax systems, in most developed countries, the share of tariffs in fiscal revenue has gradually decreased. These countries now primarily rely on income taxes, value-added taxes, and other forms of taxation. While the share of tariffs in fiscal revenue has diminished, tariffs still remain a part of government income and contribute to public spending. In the U.S., for example, tariff revenue accounted for about 2% of fiscal income in 1995. Although this percentage is small, tariffs still play a supplementary role in the broader fiscal system.

To better utilize tariffs in increasing fiscal revenue, governments need to consider multiple factors when setting tariff policies. Tariff rates should be set in a way that ensures fiscal income without excessively hindering trade activities, which could negatively affect economic vitality and development. For products with high import volumes and stable consumer demand, reasonable tariff rates can be set, ensuring fiscal income without significantly impacting consumer purchasing behavior or the normal functioning of the market. Additionally, governments should strengthen tariff collection management, improve collection efficiency, and reduce tax evasion to ensure that tariff revenue is fully collected.

3.3 Adjusting Trade Balance

Tariffs play a crucial role in adjusting the trade balance and are an important tool for achieving trade equilibrium. When a country faces a trade deficit, where imports exceed exports, increasing tariffs on imported goods can raise their costs, suppressing demand for imports and reducing import volume. Imposing tariffs on non-essential goods or products that have domestic alternatives will raise the price of these imported goods, which may lead consumers to reduce their purchases and choose domestically produced goods or other substitutes, thus reducing the scale of imports. Increasing tariffs can also encourage domestic enterprises to invest more in the production and research of relevant products, increasing the self-sufficiency of domestic goods and further reducing reliance on imports.

Tariffs can also help adjust the trade balance by promoting exports through tariff policies on export goods. Some countries offer lower tariffs or tax exemptions for their advantageous export products, reducing export costs for businesses and improving the price competitiveness of domestic products in international markets, thereby expanding export volumes. Offering tariff preferences for traditional export sectors, such as agricultural products and textiles, helps these industries’ products enter international markets more smoothly, increasing export revenue and improving the trade balance.

However, the effectiveness of tariffs in adjusting the trade balance is influenced by various factors. Global economic conditions, international market demand, and exchange rate fluctuations can all impact the effectiveness of tariff policies. Other countries may retaliate by raising tariffs in response to the imposition of tariffs, leading to trade conflicts that not only affect bilateral trade relations but also impact global trade dynamics, weakening the role of tariffs in balancing trade. Therefore, when using tariffs to adjust trade balances, it is important to consider various factors, strengthen international cooperation and coordination, and avoid triggering trade disputes to ensure the healthy development of global trade and achieve trade equilibrium.

4. Types of Tariffs

4.1 Classification by Taxable Object

4.1.1 Import Tariffs

Import tariffs are taxes levied by the customs of the importing country on foreign goods entering the country according to the customs tariff schedule. This is the most common form of tariff. Import tariffs play a multifaceted role in international trade and have significant impacts on the economy, industries, and markets of the importing country. Import tariffs can increase the price of imported goods, thereby raising the costs for importers. When the price of imported goods rises, their competitiveness in the domestic market declines, offering protection to domestic industries from foreign competition. For example, imposing high tariffs on imported cars raises their prices in the domestic market, increasing the cost for consumers. This encourages consumers to choose domestically produced cars, thus protecting the domestic automobile industry from foreign competition.
Import tariffs can also be used to adjust the trade balance. When a country faces a large trade deficit, raising import tariffs can reduce the volume of imported goods, thereby improving the trade balance. Furthermore, higher tariffs can encourage domestic enterprises to increase investment in production and research and development, improving self-sufficiency and reducing dependency on imports. Import tariffs may also affect domestic consumers, as the price increases for imported goods could raise their purchasing costs. Additionally, import tariffs can lead to trade disputes and provoke retaliatory measures by other countries, destabilizing international trade.

4.1.2 Export Tariffs

Export tariffs are taxes levied by the customs of the exporting country on goods leaving the country, based on the country’s customs tariff schedule. Compared to import tariffs, export tariffs are relatively rare but still used by some countries under specific circumstances. The main purpose of export tariffs is to increase national fiscal revenue. By imposing tariffs on certain export products that have a competitive advantage, a country can generate financial resources to support national economic development and public services. Some countries impose export tariffs on rare metals, agricultural products, and other goods to boost fiscal income.
Export tariffs can also be used to protect domestic resources and industries. By levying export tariffs on raw materials or primary products, countries can limit the outflow of resources, ensuring a steady supply of materials for domestic industries and promoting their development. Imposing export tariffs on scarce mineral resources, for example, helps prevent overexploitation and protects the country’s resource reserves. However, export tariffs may negatively affect domestic exporters and international markets. High export tariffs increase the cost for exporters, reducing the competitiveness of domestic products in the global market, and potentially leading to a loss of market share. Export tariffs may also provoke dissatisfaction from other countries, leading to intensified trade conflicts.

4.1.3 Transit Tariffs

Transit tariffs are taxes levied on foreign goods passing through the customs territory of a country and are typically paid by the relevant importers or exporters. Historically, transit tariffs were widely imposed as many countries used them to generate fiscal revenue. However, with the development of international trade and advancements in transportation technology, the use of transit tariffs has decreased, and most countries no longer levy them. This is because transit tariffs disrupt the free flow of trade and hinder the development of international transportation. Imposing such tariffs raises transportation costs, increases transit time, and obstructs the efficient movement of goods, which negatively impacts the overall efficiency of international trade.
Moreover, transit tariffs may provoke discontent and retaliation from other countries, damaging trade relations. In the context of globalization, countries now tend to promote trade liberalization and facilitation to drive economic growth, leading to a diminishing role for transit tariffs. However, in certain exceptional cases, countries may still impose transit tariffs on specific goods or transport routes to achieve particular policy objectives, such as protecting a specific domestic industry or maintaining regional economic balance. These cases are rare.

4.2 Classification by Purpose of Tariffs

4.2.1 Fiscal Tariffs

Fiscal tariffs are levies imposed primarily to increase a country’s fiscal revenue. For a long period after their inception, the primary purpose of tariffs was to generate state revenue. In the early stages of capitalist economic development, tariff revenues played a major role in the fiscal revenues of some countries. For instance, in the late 17th century, tariff revenues accounted for more than 80% of fiscal revenue in European countries. In the early years of the United States, tariffs were the primary source of government revenue, and in 1902, tariff income still accounted for 47.4% of total government tax receipts.
With the development of the economy and the improvement of tax systems, fiscal tariffs have become less important in most developed countries, where income from other taxes, such as income tax and value-added tax, has become the primary source of fiscal revenue. In some developing countries, where the economy is less developed and direct tax sources are limited, tariffs still account for a large proportion of national fiscal income. To increase fiscal revenue, fiscal tariffs are generally set at lower rates. This is because excessively high tariff rates may reduce imports, which would, in turn, lower tariff revenue and defeat the purpose of raising fiscal income. Tariffs on goods that are large in volume, widely consumed, and bear strong tax capacity, such as some basic consumer goods and industrial raw materials, can be set at reasonable low rates to ensure steady fiscal revenue without overly suppressing imports. The taxable goods for fiscal tariffs should generally be non-essential items or non-essential production goods, to ensure a stable tax source without negatively impacting domestic production and people’s daily life.

4.2.2 Protective Tariffs

Protective tariffs are imposed to protect the development of domestic industries. The direct effect of such tariffs is to block foreign competition. When foreign goods enter a domestic market, imposing higher tariffs on those goods raises their prices, reducing their competitiveness in the domestic market and creating a more favorable environment for the development of domestic industries. For instance, by imposing high tariffs on imported auto parts, the price of foreign parts increases, making domestic automobile manufacturers more likely to purchase parts from local suppliers, thus promoting the development of the domestic auto parts industry and improving its technological level and production capacity.
If the tariff rate is set so high that the price gap between domestic products and imported goods disappears or even results in imported products being more expensive than domestically produced items, this type of tariff is called a prohibitive tariff. While prohibitive tariffs can effectively protect domestic industries from foreign competition, they may also lead to a lack of competitive pressure, reducing innovation and efficiency. Thus, when implementing protective tariffs, the rate needs to be set based on the development status of domestic industries and the competitive landscape of international markets to both protect domestic industries and foster their development and competitiveness.

4.2.3 Income Redistribution Tariffs

Income redistribution tariffs are levies aimed at adjusting the income distribution among domestic social classes. The principle behind this type of tariff is to adjust social income distribution by setting different tariff rates for various types of imported goods. High tariffs are imposed on luxury goods, while lower tariffs or no tariffs are applied to essential goods. Since luxury goods are typically consumed by high-income groups, imposing high tariffs on them increases the consumption costs for wealthier individuals, thus redistributing income to some extent. On the other hand, imposing low tariffs or exempting essential goods from tariffs reduces the living burden of low-income groups, ensuring their basic life needs are met.
Similarly, high tariffs on highly profitable imported goods and low or no tariffs on goods with lower or no profits can also help achieve income redistribution. This method can curb the excessive development of profitable industries, reduce unreasonable income disparities, and promote social fairness and stability. In practice, income redistribution tariffs need to take into account multiple factors, such as domestic industry structure, consumer demand, and international trade relations, to ensure the policy can achieve the intended redistributive effect without negatively impacting economic development and trade balance.

4.3 Classification by Taxation Method

4.3.1 Specific Tariff (Ad Valorem Tariff)

A specific tariff is a type of tariff imposed based on the physical measurement units of a product, such as weight, quantity, length, volume, or area. The calculation formula for specific tariffs is as follows: Specific Tariff Amount = Quantity of Goods × Specific Tariff per Unit of Product. For example, the European Union’s 1992 tariff schedule stipulates a tariff of 40 European currency units per 100 liters of Champagne. In China, specific tariffs are applied to imported goods such as beer, crude oil, and photosensitive films.

The advantage of specific tariffs lies in the simplicity of the procedures. They do not require the customs authorities to determine the specifications, quality, or price of goods, making them easy to calculate. However, since the unit tariff is fixed, during periods of price inflation, tax revenue does not increase in line with the sales value of goods, which may lead to a relative decrease in fiscal income. Conversely, during periods of price deflation, the tax burden increases, which could excessively suppress imports. Specific tariffs impose the same duty on low-quality, low-priced goods as they do on high-quality goods, which makes the importation of low-grade products less favorable, and thus has a protective effect on higher-end products. Some countries heavily rely on specific tariffs, particularly for imports of food, beverages, and animal and vegetable oils. In the United States, about 33% of tariff items are subject to specific tariffs, and in Norway, specific tariffs account for 28%. Developed countries, whose export goods are typically of higher quality, generally face much higher specific tariff burdens than developing countries.

4.3.2 Ad Valorem Tariff

An ad valorem tariff is a tariff imposed based on the value (price) of goods, meaning it is calculated as a percentage of the total value or price of the imported goods. The calculation formula for ad valorem tariffs is as follows: Ad Valorem Tariff Amount = Total Value of Goods × Ad Valorem Tariff Rate.

In the collection of ad valorem tariffs, customs authorities must first confirm or determine the value or price of the goods as the taxable value. This process is called customs valuation. Currently, most developed countries define the taxable value as the normal price, which refers to the price agreed upon in a transaction between independent buyers and sellers under free market conditions. If the invoice amount is consistent with the normal price, the invoice price is used as the taxable value. If the invoice price is lower than the normal price, customs will determine the value based on their own valuation methods. Some countries use the CIF (Cost, Insurance, and Freight) or FOB (Free On Board) prices as the taxable value, with China using the CIF price to calculate import taxes.

Ad valorem tariffs are considered fairer in terms of tax burden because the tax amount increases or decreases in accordance with the price and quality of the goods, which aligns with the principles of fairness in taxation. When the tax rate remains constant, the tax amount increases with the price of the goods, which can increase fiscal revenue and protect domestic industries. The collection of ad valorem tariffs is relatively simple, as for the same type of goods, there is no need to classify them in detail based on their quality, and the tax rate is clear and easy to compare between different countries. However, ad valorem tariffs also have some drawbacks. The determination of the taxable value can be complex and requires professional customs valuation and verification, which increases the difficulty and cost of collection. Moreover, there may be a certain degree of subjectivity and uncertainty in the valuation process.

4.3.3 Compound Tariff

A compound tariff is a type of tariff that combines both ad valorem and specific tariffs. In practice, for certain products, customs may apply both an ad valorem tariff and a specific tariff to calculate the total duty. For example, high-end electronic products may be subject to a certain percentage of ad valorem duty based on their value, along with a specific duty based on quantity.

The compound tariff combines the advantages of both ad valorem and specific tariffs, compensating for the shortcomings of a single tariff method. It can adjust tax revenue according to the price changes of goods, ensuring that the tax remains correlated with the value of the goods, while also controlling the quantity of goods through the specific tariff, helping to stabilize tax revenue and regulate trade.

For goods with large price fluctuations but relatively stable quantities, a compound tariff can avoid the instability in tax revenue that arises from price fluctuations under a purely ad valorem system, while also overcoming the limitations of a purely specific tariff, which may not adequately reflect price differences. The collection of compound tariffs is relatively complex, as it requires consideration of both the value and quantity of goods. This imposes higher demands on customs’ administrative capacity and technical expertise. In practice, customs must accurately determine the appropriate ratio and amount for the ad valorem and specific tariffs to ensure that the tariff policy is reasonable and effective.

4.4 Classification of Customs Duties Based on Specific Functions (Special Tariffs)

4.4.1 Anti-dumping Duty

An anti-dumping duty is a special tariff imposed on imported goods that are sold at a price lower than their normal value, with the aim of counteracting dumping practices and protecting domestic industries. When foreign goods enter the domestic market at prices lower than their normal value, causing or threatening to cause material harm to the domestic industry, the importing country may impose an anti-dumping duty on these goods. The imposition of the anti-dumping duty increases the price of dumped goods, restoring their price to a reasonable level in the domestic market, thereby reducing their price advantage and minimizing the impact on the domestic industry. For example, if a foreign brand of electronic products is being dumped at below-cost prices in the domestic market, causing a decline in market share and profits for domestic manufacturers, the government can investigate and impose an anti-dumping duty to protect the domestic electronics industry. The imposition of anti-dumping duties must follow strict legal procedures, typically requiring investigations and damage determinations to ensure fairness and legitimacy.

4.4.2 Countervailing Duty

A countervailing duty is a special tariff imposed on imported goods that have received subsidies from foreign governments or enterprises, aimed at offsetting the unfair competitive advantage that these subsidies create and protecting domestic industries from unfair competition. When foreign governments or enterprises provide subsidies to export goods, causing them to have an unreasonable price advantage in the domestic market and harming the domestic industry, the importing country may impose a countervailing duty on these imported goods. For example, if a foreign government provides large subsidies to agricultural exports, allowing them to enter the domestic market at lower prices, harming the domestic agricultural sector, the government can impose a countervailing duty after investigation to balance market competition and protect the domestic agricultural industry. Like anti-dumping duties, the imposition of countervailing duties also requires compliance with relevant laws and regulations, with strict investigations and determinations to ensure that the measures are based on fair and reasonable principles.

4.4.3 Retaliatory Tariffs

A retaliatory tariff is a measure taken by a country to protect its interests in response to unfair or discriminatory trade restrictions imposed by a foreign country on its goods, ships, enterprises, investments, or intellectual property. It involves imposing higher tariffs on goods imported from the offending country. For example, when one country finds that its exports to another country are subject to unreasonable tariff restrictions or other trade barriers, it may impose retaliatory tariffs on certain or all imported goods from that country to pressure the foreign country to change its unfair trade policies. After the U.S. imposed tariffs on some Chinese goods, China retaliated by imposing tariffs on certain U.S. imports as a response to U.S. trade protectionism. The imposition of retaliatory tariffs often escalates trade disputes and negatively impacts bilateral or multilateral trade relations. Therefore, retaliatory tariffs must be carefully weighed for their pros and cons, and it is important to resolve trade disputes through negotiations and dialogue to maintain stable international trade relations.

4.4.4 Differential Tariff

A differential tariff, also known as a differential tax, is a tariff imposed on imported goods based on the price difference between those goods and similar domestic products. When the import price of a product is lower than the domestic market price, a differential tariff is imposed on the imported goods based on the price difference, ensuring that the price of imported goods aligns with domestic prices, thus eliminating the price advantage of imports. For example, the European Union imposes differential tariffs on agricultural products to protect its internal agricultural production. When imported agricultural products from non-EU countries are priced lower than those within the EU, the EU imposes a differential tariff based on the price difference, ensuring that domestic agricultural products remain competitive in the market. The rate of the differential tariff adjusts with the price difference between imported goods and domestic products, providing flexibility and targeting the protection of domestic industries from low-priced imports.

4.4.5 Seasonal Tariff

A seasonal tariff is a type of tariff imposed on goods that have seasonal characteristics, such as fruits, vegetables, and clothing, with varying tax rates depending on the season. For example, during the peak season for fruits, the tariff on imported fruits may be increased to prevent a flood of low-priced imports from undermining the domestic market and hurting local farmers’ interests. During the off-season, the tariff may be reduced to increase imports to meet domestic demand. This tariff structure helps balance supply and demand in the domestic market, stabilize domestic prices, and protect the reasonable interests of related domestic industries across different seasons. By imposing seasonal tariffs, the timing and quantity of goods imported can be adjusted, avoiding excessive market fluctuations due to seasonal factors and promoting the stable development of domestic industries, while ensuring that consumers can access goods at reasonable prices throughout the year.

4.4.6 Preferential Tariffs

A preferential tariff is a tariff policy that provides lower tariffs or exemptions for imported goods from specific countries or regions, aimed at promoting trade and enhancing economic cooperation. Preferential tariffs come in various forms, such as most-favored-nation (MFN) tariffs, agreement tariffs, special preferential tariffs, and generalized system of preferences (GSP) tariffs. Most-favored-nation tariffs refer to the principle that if one country grants any special privileges, exemptions, or advantages to a third country, it must also grant the same treatment to the other party. This non-discriminatory tariff treatment promotes fair and free international trade. Agreement tariffs are those granted under trade agreements between two or more countries, where each party offers tariff preferences on certain goods, which are usually more favorable than MFN tariffs, strengthening economic ties and trade cooperation between the signatories. Special preferential tariffs provide particularly favorable low tariffs or exemptions to specific countries or regions, reflecting mutual assistance and support for developing countries, such as the preferential tariffs between the EU and over 60 countries and regions in Africa, the Caribbean, and the Pacific under the Lomé Convention. GSP tariffs are those provided by developed countries to imports from developing countries or regions, particularly for manufactured and semi-manufactured goods, to encourage economic development and trade growth in these countries. Preferential tariff policies reduce the cost of imported goods, improve their competitiveness in the domestic market, promote trade liberalization and economic globalization, and help strengthen friendly relations and cooperation between countries.

5. Impact Mechanisms of Tariffs and Case Analysis

5.1 Price Transmission Mechanism

5.1.1 The Case of the U.S. Imposing Tariffs on Mexican Cars

The case of the U.S. imposing tariffs on Mexican cars clearly demonstrates the role of tariffs in the price transmission mechanism. In the global automotive supply chain, Mexico is an important supplier of cars and parts to the United States. In February 2025, the U.S. government announced a 25% tariff on imported Mexican cars. This measure immediately impacted the price of Mexican cars in the U.S. market. For example, a Mexican imported car that was originally priced at $20,000 would require the U.S. importer to pay an additional $5,000 as tax due to the 25% tariff. To maintain profit margins, the importer would inevitably pass on this added cost to consumers, raising the price of the car to $25,000. This means consumers would need to pay $5,000 more for the same Mexican imported car, an increase of 25%.

The price increase not only directly affects consumers’ purchasing costs but also triggers a chain reaction in the U.S. domestic car market’s pricing system. The price increase of Mexican cars in the U.S. will give U.S. domestic manufacturers and other foreign car brands a relative pricing advantage, which may lead them to adjust their pricing strategies. U.S. car manufacturers may raise their prices to secure higher profit margins, and other foreign car brands may adjust their prices accordingly in response to market changes. This price transmission effect will spread throughout the entire car market, influencing the prices of cars from different brands and tiers, ultimately causing the overall price level in the U.S. car market to rise.

5.2 Supply and Demand Mechanism Changes

5.2.1 The Case of the U.S. Imposing Tariffs on Mexican Agricultural Products

The case of the U.S. imposing tariffs on Mexican agricultural products deeply reflects the impact of tariffs in the supply and demand changes mechanism. Mexico is an important supplier of agricultural products to the U.S., and the two countries have close ties in agricultural trade. After the U.S. imposed tariffs on Mexican agricultural products, the prices of these products in the U.S. market immediately increased. Take Mexican tomatoes as an example: the price of Mexican tomatoes, originally $1, may rise to $1.25 after the tariff.

The price increase directly leads to a decrease in U.S. consumer demand for Mexican agricultural products. Consumers generally consider price when purchasing agricultural products, and when the price of Mexican agricultural products increases, they tend to reduce their purchases. The U.S. food service industry, a major consumer of Mexican agricultural products, may reduce its purchases from Mexico and look for alternative options. They may choose to buy domestically produced agricultural products, increasing demand for U.S. farm products and boosting domestic agriculture. Alternatively, they may turn to other countries, such as Canada or Chile, to import similar agricultural products, thus increasing the market share of these countries’ products in the U.S.

This supply and demand shift not only affects the sales of agricultural products but also influences agricultural production and planting structures. U.S. farmers, seeing the increased demand for domestic agricultural products, may expand planting areas and production to meet market demand and earn more profits. In contrast, Mexican producers of agricultural products, facing reduced demand in the U.S. market, may struggle with unsold goods. They might reduce the cultivation of the products affected by tariffs and adjust their planting strategies, shifting to crops that are less affected by tariffs or have relatively stable market demand. Alternatively, they might seek to explore other international markets to reduce their dependence on the U.S. market.

5.3 Production Adjustment Mechanism

The Case of U.S. Tariffs on Mexico Prompting Production Adjustments by Enterprises

The U.S. tariffs on Mexico have prompted enterprises to adjust their production strategies in response to market changes caused by the tariffs. U.S. and Mexican companies, in this process, have taken different adjustment measures.

For U.S. companies, the rise in Mexican product prices due to tariffs creates a more favorable market environment. They may expand production to fill the market gap. In the automotive industry, U.S. car manufacturers, who previously faced pressure from competition with Mexican imported cars, now find an opportunity to increase their market share as the price of Mexican cars rises, and their competitiveness decreases. They may increase production, invest more in production equipment upgrades, and in research and development to improve production efficiency and product quality, in order to meet market demand for cars. U.S. manufacturers may also increase their purchases from domestic parts suppliers, which would promote the development of the domestic auto parts industry and further improve the domestic automotive supply chain.

Mexican companies, on the other hand, are directly impacted by tariffs, and their products have significantly decreased in competitiveness in the U.S. market, leading to fewer orders. To cope with this situation, Mexican companies may reduce their exports to the U.S. and actively seek to explore other international markets, such as Europe or Asia, to reduce their reliance on the U.S. market. Some Mexican car companies may move part of their production to countries with lower tariffs, such as Canada or Southeast Asia. These regions offer relatively lower tariffs and production cost advantages, helping companies reduce costs and increase their competitiveness in international markets. Mexican companies may also increase investments in their domestic markets, improving their market share and strengthening their brand recognition and marketing efforts to mitigate losses in the U.S. market.

6. The Impact of Tariffs on Different Stakeholders

6.1 Impact on Consumers

6.1.1 Case Study: U.S. Consumers Affected by Tariffs

A clear example of how tariffs affect consumers can be seen in the case of U.S. consumers purchasing goods from Mexico. When the U.S. imposes tariffs on Mexican products, the prices of these goods in the U.S. market rise significantly. In the case of agricultural products, Mexico is an important supplier of goods to the U.S. If the U.S. imposes tariffs on Mexican avocados, for example, the price of avocados increases from $2 per pound to $2.50 after a 25% tariff. For average U.S. consumers, this means they will need to pay more for the same amount of avocados, increasing their living costs. If a U.S. household buys 10 pounds of avocados a month, they will spend $20 before the tariff and $25 after the tariff, an additional $5 per month.

In the automobile sector, Mexico is also an important supplier of cars and auto parts to the U.S. The imposition of tariffs on Mexican cars increases the prices of these vehicles in the U.S. market. A car that originally costs $20,000 would rise to $25,000 after a 25% tariff. For U.S. consumers, the cost of purchasing a car increases by $5,000, which may lead some consumers to forgo buying Mexican-imported cars or opt for other brands with lower prices, thus affecting their consumption choices and quality of life.

The price hikes caused by tariffs may trigger a series of ripple effects. Consumers paying more for Mexican goods may reduce their spending on other items, such as entertainment and travel, which could suppress overall consumption in the market. High prices could also reduce real income, affecting consumer satisfaction and happiness.

6.2 Impact on Enterprises

6.2.1 Case Study: U.S. Businesses Affected by Tariffs

U.S. businesses face many challenges due to tariffs. Many U.S. companies rely on Mexico for their supply chain, as Mexico provides a large amount of auto parts and raw materials to U.S. businesses. After tariffs were imposed on Mexican goods, the procurement costs for these companies surged. For example, a well-known U.S. car manufacturer that imports auto parts from Mexico saw the cost of parts for each vehicle rise by about $1,000 after the tariff increase. This raised the production cost of the vehicles and squeezed the profit margins.

In response to these increased costs, businesses may take a series of actions, but these solutions often come with additional problems. Companies might raise their product prices to pass on the increased costs to consumers. However, this could make their products less competitive in the market, as consumers might choose other more affordable brands. After raising the price of cars by $1,000, the manufacturer’s market share may decline as consumers turn to other brands, leading to a decrease in sales.

Businesses may also try to find alternative suppliers to reduce procurement costs. However, finding new suppliers requires time and money, and there is uncertainty about the quality and stability of supplies from new suppliers. The process of shifting suppliers can cause production disruptions, affecting normal operations and production.

6.2.2 Case Study: Mexican Businesses Affected by Tariffs

Mexican businesses are also significantly impacted by U.S. tariff policies. As an important trading partner of the U.S., many Mexican businesses rely heavily on exports to the U.S. When the U.S. imposes tariffs on Mexican goods, these businesses face a decline in demand in the U.S. market. For example, a clothing manufacturer in Mexico that primarily exports to the U.S. saw a significant reduction in orders after the tariffs were imposed. Originally exporting 100,000 pieces of clothing per year to the U.S., the company saw the order volume drop to 50,000 pieces after the tariff hike—cutting their orders in half.

This drop in orders severely impacted the production and operations of the Mexican company. The company had to reduce its production scale, and layoffs became a common response. To lower costs, the clothing manufacturer had to lay off half of its employees, resulting in job losses and negatively affecting the local economy and social stability. The decrease in orders also led to an accumulation of unsold inventory, causing cash flow problems. The company could not sell its products in time, and the increasing inventory tied up a lot of capital, preventing the company from operating normally. To alleviate the cash flow pressure, the company may have to lower product prices to promote sales, but this further compressed its profit margins, leading the business into a difficult situation.

6.3 Impact on Global Supply Chains

6.3.1 Case Study: Multinational Companies Adjusting Production Layouts

Tariffs have a significant impact on global supply chains, forcing many multinational companies to adjust their production layouts. For example, companies like Samsung and LG in South Korea, due to the threat of U.S. tariffs on Mexico, have considered relocating their production from Mexico to other countries. Samsung, which produces dryers in Querétaro, Mexico, has considered moving production to South Carolina to avoid tariff-related cost increases. The company already produces washing machines there, and since the production lines for washers and dryers are similar, this move would be relatively easy for Samsung. LG also plans to relocate the production of refrigerators and televisions from Mexico to Tennessee and has already acquired land for building additional factories.

This adjustment in production layout reflects the profound impact of tariffs on global supply chains. When making production layout decisions, multinational companies need to consider various factors, such as tariffs, production costs, and market demand. Changes in tariffs can alter a company’s cost structure and prompt them to reassess their choice of production locations. Moving production from Mexico to the U.S. may increase labor costs and other expenses but can help avoid high tariff costs, thus reducing the company’s overall cost. This shift also affects the stability and efficiency of global supply chains. Changes in production locations may require the reorganization of the entire supply chain, including raw material procurement and logistics, which could increase complexity and uncertainty.

Conclusion

Tariffs, as taxes imposed by the government on importers and exporters when goods pass through a country’s customs border, are characterized by their compulsory, non-compensatory, and predetermined nature, which makes them distinct from other domestic taxes.

The purposes of tariffs are diverse and include protecting domestic industries, increasing fiscal revenue, and adjusting trade balances. When protecting domestic industries, tariffs raise the cost of imported goods, providing space for the development of domestic industries. However, excessive protection over the long term can lead to a lack of competitiveness. In terms of increasing fiscal revenue, the importance of tariffs varies depending on the stage of development and the specific country. When adjusting trade balances, tariffs can influence the scale of imports and exports, but they may also lead to trade disputes.

There is a wide variety of tariffs. Based on the taxable subject, they can be classified as import tariffs, export tariffs, and transit tariffs. Based on the purpose of collection, they include fiscal tariffs, protective tariffs, and income redistribution tariffs. Based on the method of taxation, there are ad valorem tariffs, specific tariffs, and compound tariffs. Based on their specific function, there are anti-dumping duties, countervailing duties, retaliatory tariffs, price differentiation taxes, seasonal tariffs, and preferential tariffs. Each type of tariff has its own unique purpose and mechanism.

The impact mechanism of tariffs is complex and extensive. Through the price transmission mechanism, tariffs affect the prices of goods, which in turn alters market supply and demand, prompting companies to adjust their production strategies. When the U.S. imposes tariffs on Mexican goods, the prices of Mexican products in the U.S. market rise, leading to a decrease in consumer demand and changes in corporate production layouts. These changes have far-reaching effects on consumers, businesses, and the global supply chain. For consumers, tariffs increase the cost of living and affect their consumption choices. For businesses, they raise production costs and alter the market competition landscape. For the global supply chain, tariffs lead to adjustments in production layouts, increasing supply chain uncertainty.