For other uses of this word, see tariff (disambiguation).
A tariff is a tax on foreign goods upon importation. When a ship arrives in port a customs officer inspects the contents and charges a tax according to the tariff formula. Since the goods cannot be landed until the tax is paid it is the easiest tax to collect, and the cost of collection is small. Traders seeking to evade tariffs are known as smugglers.
Tariffs may be of various kinds:
and have various intended purpose:
The distinction between protective and revenue tariffs is subtle: protective tariffs in addition to protecting local producers also raise revenue; revenue tariffs produce revenue but they also offer some protection to local heroes.
Tax, tariff and trade rules in modern times are usually set together because of their common impact on industrial policy, investment policy, and agricultural policy. A trade bloc is a group of allied countries agreeing to minimize or eliminate tariffs against trade with each other, and possibly to impose protective tariffs on imports from outside the bloc. A customs union has a common external tariff, and, according to an agreed formula, the participating countries share the revenues from tariffs on goods entering the customs union.
If a country's major industries lose to foreign competition, the loss of jobs and tax revenue can severely impair parts of that country's economy. Protective tariffs have been used as a measure against this possibility. However, protective tariffs have disadvantages as well. The most notable is that they increase the price of the good subject to the tariff, disadvantaging consumers of that good or manufacturers who use that good to produce something else: for example a tariff on food can increase poverty, while a tariff on steel can make automobile manufacture less competitive. They can also backfire if countries whose trade is disadvantaged by the tariff impose tariffs of their own, resulting in a trade war and, according to free trade theorists, disadvantaging both sides.
There are two main ways of implementing a tariff:
Adherents of supply-side economics sometimes refer to domestic taxes, such as income taxes, as being a "tariff" affecting inter-household trade.

An "ad valorem tariff" is a percentage of the value of the item, say 10 cents on the dollar
A "specific tariff" does not relate to the value of the imported goods but to its weight, volume, surface, etc. The specific duty stipulates how many units of currency are to be levied per unit of quantity (e.g. US$2 per kg).
A "revenue tariff" is a set of rates designed primarily to raise money for the government. A tariff on coffee imports, for example (imposed by countries where coffee cannot be grown) raises a steady flow of revenue.
A "protective tariff" is intended to artificially inflate prices of imports and "protect" domestic industries from foreign competition (see also effective rate of protection). For example, a 50% tax on an imported machine that raises the price from $100 to $150. Without a tariff the local manufacturers could only charge $100 for the same machine; now they can charge $149 and make the sale.
A "prohibitive tariff" is one so high that no one imports any of that item.
An ad valorem tariff is a fixed percentage of the value of the good that is being imported. Sometimes these are problematic as when the international price of a good falls, so does the tariff, and domestic industries become more vulnerable to competition. Conversely when the price of a good rises on the international market so does the tariff, but a country is often less interested in protection when the price is higher. They also face the problem of transfer pricing where a company declares a value for goods being traded which differs from the market price, aimed at reducing overall taxes due.
A specific tariff is a tariff of a specific amount of money that does not vary with the price of the good. These tariffs may be harder to decide the amount at which to set them, and they may need to be updated due to changes in the market or inflation. Economic analysis

Main article: Infant industry argument Infant industry argument
The tariff is also used as a political tool to establish an independent nation. For example, the Tariff Act of 1789, signed specifically on July 4th, was called the "Second Declaration of Independence" by newspapers because it was intended to be the economic means to achieve the political goal of a sovereign and independent United States.
In a free market economic system, the tariff establishes the borders or boundaries of the system, because as defined by free market economics, the absence of tariffs is a requirement of a free market economic system. The establishment of tariffs create a border of protection around the free market economy, and within that free market area, no tariffs can be established.
The four requirements of a free market economic system, as defined by Ludwig Von Mises, are private property, a coersive government, the absence of institutional interferences within the system, and the division of labor.

Political Purpose
Critics of free trade have argued that tariffs are especially important to developing countries as a source of revenue. Developing nations do not have the institutional capacity to effectively levy income and sales taxes. In comparison with other forms of taxation, tariffs are relatively easy to collect. The trend of lifting tariffs and promoting free trade has been argued to have had disproportionately negative effects on the governments of developing nations who have greater difficulty than developed nations in replacing tariffs as a revenue source.[1]