Question

How does tariff affects business?

Answer 1

Tariff can affect businesses in many ways. Tariff is imposed on import and this can include both goods and services that are used for final consumption as well as intermediate goods. Those businesses that use the imported good as an intermediate good, find that the price of imported good is increased as a result of tariff and their cost of production of final goods increases as well. This is likely to reduce their sales because now the imported goods are priced higher.

In contrast to those businesses, domestic producers of local goods always find it beneficial to have a tariff. Because now the price is increased consumers will start purchasing the domestically manufactured good which is likely to increase their sales. Domestic producers also use lobbying activities and ask the government to keep the tariff in place so that they can enjoy increased producer surplus.