Tariffs are a form of tax imposed on imports of merchandised goods. They are considered a source of revenue among other forms of taxes for financing government expenditures on goods and services demanded by services. As advised, developing countries ought to raise the necessary revenue without borrowing excessively, which discourages economic activity and deviates from other countries’ tax systems. Tariffs are ad valorem—based on a percentage of the value.
The origin of import tariff is tracked back to the Great Depression, when the gold standard collapsed; hence Britain devised a method of reducing unemployment by imposing import controls. Tariffs were imposed as a short-term measure of increasing employment and output with consequences of declining production in the long-term. But since it is levied on export and import goods, it generates revenues for governments. Beyond generating revenues for government, tariffs are imposed to protect local goods against foreign products and restricting foreign goods from flooding the local market.
African countries have been using tariffs as a means to generate revenue for their governments. But the issue is that tariffs, while on the surface may seem helpful to stimulate local markets, They have very negative consequences on economies that are trying to grow.
First, tariffs increase the cost of imported goods by imposing additional taxes or duties on them. This results in higher prices for consumers who purchase those goods. When prices rise, it can be particularly burdensome for low-income individuals and families who may rely on affordable imports for basic necessities. Second, tariffs limit the variety of goods available in the domestic market. By making imports more expensive, tariffs can discourage foreign producers from exporting their products, leading to a narrower range of options for consumers. This reduced competition can stifle innovation, limit consumer choice, and hinder economic growth. Third, tariffs distort market forces by artificially shielding domestic industries from foreign competition. When protected by tariffs, domestic industries may become complacent, as they face less pressure to innovate, improve efficiency, or lower prices. This can result in a misallocation of resources, as industries that may not be competitive on a global scale receive protection and resources that could be better utilized in more productive sectors. Fourth, tariffs can trigger a cycle of protectionism and retaliation between countries. When one country imposes tariffs, others may respond with their own tariffs on the first country's exports. This tit-for-tat escalation can lead to a trade war, where both sides suffer economic harm as trade barriers increase. Trade wars can disrupt global supply chains, harm businesses, and reduce economic cooperation between nations.
Fifth, tariffs can hinder economic growth by impeding international trade. Free trade allows countries to specialize in producing goods and services in which they have a comparative advantage, leading to increased efficiency and productivity. By erecting barriers to trade, tariffs reduce the potential gains from specialization and limit the overall growth of economies.
Therefore, although import tariffs can benefit domestic economies through revenue generation and encourage local manufacturing, they could be irrelevant to the current African case. Import tariffs are not a suitable approach to fixing the economy as it harms domestic economies through the creation of a deficit of goods, limiting consumer choices, increasing unemployment rates, and adversely influencing their ability to trade globally.