What are tariffs or custom duties?

Tariffs or customs duties are primarily defined as taxes imposed by a government on imported goods. The primary purpose of these taxes is to generate revenue for the government and to protect domestic industries from foreign competition by making imported goods more expensive. When tariffs are applied, the cost of importing goods rises, which can lead to an increase in prices for consumers, encouraging them to purchase domestically produced goods instead.

This mechanism helps stimulate local businesses, but it is fundamentally a tax on imports rather than an incentive. Unlike the other potential options, which refer to producer subsidies or domestic sales regulations, tariffs are specifically linked to international trade and the taxation of goods as they cross borders. Thus, recognizing tariffs as taxes on imported goods embraces their role in trade policy and economic strategy.