If you’ve ever bought imported products directly from an overseas manufacturer, you may have noticed additional taxes. Often, these are a result of protective tariffs imposed on foreign goods and services to give domestic businesses a competitive edge.
While protective tariffs can support local industries in the short term, they can also hurt consumers and economies over time by shielding inefficient businesses that charge too much. Learn what protective tariffs are, their benefits and drawbacks, and what they mean for your business or industry.
What is a protective tariff?
A protective tariff, also called a duty, is a tax imposed on imported goods or services. Protective tariffs can improve sales for domestic industries and limit foreign competition by forcing imports to raise prices to compensate for the tariff. By creating a market where imported goods come at a higher price than equivalent domestic products, protective tariffs attempt to strengthen local economies.
For example, if the U.S. imposes a 25% tariff on imported steel, the price of imported steel rises compared to domestically produced steel, encouraging businesses and consumers to buy from local suppliers instead
A brief history of protective tariffs
Founding Father Alexander Hamilton was one of the first proponents of imposing tariffs on goods imported to America to spur growth of nascent domestic manufacturers. President George Washington signed the Tariff Act of 1789, one of the first pieces of legislation passed by Congress after the Constitution’s ratification in 1788. High tariffs were a primary revenue source for the US government during the late 19th century and early 20th century, until the adoption of the federal income tax in 1913.
In an attempt to offset the economic downturn of the Great Depression, US Congress passed the Tariff Act of 1930, also known as the Smoot-Hawley Tariff. However, the act backfired because other countries retaliated with their own tariffs, which choked off international trade and deepened the Great Depression.
While protective tariffs became less common after 1930, the 2002 and 2018 steel tariffs were notable exceptions. In 2025, there's also been a notable resurgence in their use under the Trump administration.
What are the benefits of protective tariffs?
- Protects emerging industries
- Discourages unfair trade practices (dumping)
- Increases domestic tax revenue
Governments that implement protective tariffs can potentially benefit from them in a handful of ways:
Protects emerging industries
Protective tariffs increase the amount of taxes overseas manufacturers and merchants must pay to export their products to a specific region or country. Ultimately, consumers pay these additional taxes, making imported products more expensive than domestic goods. By giving domestic manufacturers and merchants a competitive pricing advantage, protective tariffs can help domestic nascent industries grow.
Discourages unfair trade practices (dumping)
Protective tariffs can deter dumping, which occurs when foreign manufacturers sell products at a lower price in another country to undercut local competition and monopolize the market.
One example of how protective tariffs discourage dumping is with the paperclip industry in the American market during the mid-1990s. The US imposed a 127% tariff on Chinese-manufactured paper clips to support domestic paperclip manufacturers. This sharply reduced imports, preventing foreign underpricing and helping US producers maintain their market share.
Increases domestic tax revenue
Governments collect revenue from protective tariffs, which can be used to fund infrastructure, public services, or economic development programs.
What are the drawbacks of protective tariffs?
Protective tariffs also have several drawbacks:
Raises prices for consumers
Consumers end up paying the additional cost that results from protective tariffs on imported products and services. These extra costs can add up for customers, ecommerce entrepreneurs, and small businesses that rely on imports.
One example of tariffs costing consumers money is the 2018 tariffs placed on washing machines, which resulted in the median price of washing machines increasing by $86 a unit, according to a study in the American Economic Review.
Hurts international trade relations
Protective tariffs can inspire retaliatory tariffs that end up costing consumers more money in regions or countries on both sides of the trade. Raising prices on imports and exports through protective tariffs can limit cross-border ecommerce sales, which accounted for 22% of ecommerce product shipments in 2022.
Can reduce economic growth
By raising prices and creating international trade barriers, protective tariffs may slow economic growth and harm companies that import and export. Although the goal of protective tariffs is to help domestic companies, the long-term impacts have the potential to hurt consumers and small business owners. However, the additional tax revenue generated may be put to work in the economy.
Protective tariff FAQ
What is the goal of protective tariffs?
The goal of protective tariffs is to shield a country's domestic industries from foreign competition by imposing taxes on imported goods, making them more expensive. Examples include tariffs on imported steel to support local steel manufacturers or on agricultural products to boost domestic farming, thereby encouraging consumers to buy locally produced items.
What are protective tariffs?
Protective tariffs are taxes imposed on products imported from an overseas manufacturer or merchant. Protective tariffs intend to protect domestic companies from international competition by creating market conditions where imported products ultimately cost more than similar domestic goods or services.
What is an example of a protective tariff?
An example of the US implementing a protective tariff is the antidumping duty order placed on certain paper clip products imported from China.
What are the implications of a protective tariff?
There are several implications of protective tariffs, namely higher prices on imported products. Other potential implications of protective tariffs include a decline in trade and increased tax revenue, at least in the short term.
