Page 27 - Policy Economic Report - Jan 2026

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Lessons from Economics

The Basics of Tariffs and Trade Barriers

Tariffs are a type of trade barrier that makes imported products more expensive than domestic products.
Tariffs typically come in the form of taxes or duties levied on importers, and they are eventually passed
on to consumers. They are commonly used in international trade as a protectionist measure.

Why Are Tariffs and Trade Barriers Used?

• Protecting Domestic Employment

The possibility of increased competition from imported goods can threaten domestic industries. These
domestic companies may fire workers or shift production abroad to cut costs, which means
higher unemployment.

• Infant Industries

The use of tariffs to protect infant industries can be seen in the Import Substitution Industrialization
(ISI) strategy employed by many developing nations. A developing economy's government will levy tariffs
on imported goods in industries in which it wants to foster growth.

• Protecting Consumers

A government may levy a tariff on products that it feels could endanger its population. For example, a
country may place a tariff on imported beef if it thinks that the goods could be tainted with a disease.

• National Security

Barriers are also employed by developed countries to protect certain industries that are deemed
strategically important, such as those supporting national security. Defense industries are often viewed
as vital to state interests and often enjoy significant levels of protection.

There are several types of tariffs and barriers that a government can employ:

• Specific tariffs- A fixed fee levied on one unit of an imported good is referred to as a specific tariff.
This tariff can vary according to the type of goods imported.

• Ad Valorem Tariffs- The phrase "ad valorem" is Latin for "according to value," and this type of
tariff is levied on a good based on a percentage of that good's value. An example of an ad valorem
tariff would be a 15% tariff levied by Japan on U.S. automobiles.

• Licenses- A license is granted to a business by the government and allows the business to import
a certain type of good into the country. For example, there could be a restriction on imported

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