In today’s globalized world, countries utilize various economic policies, including tariffs, to regulate international trade and protect their domestic industries. The correct answer to the question is Option A – “only on imports.”

Tariffs are primarily imposed on imports, which are goods and services that are produced in foreign countries and brought into the domestic market. Let’s explore why this answer is correct and then discuss why the other options, B, C, and D, are not correct.

Option A – Only on imports:

Tariffs, also known as import duties, are taxes or fees levied by a country on products and services imported from other nations. The primary purpose of imposing tariffs on imports is to protect domestic industries and generate revenue for the government. Here’s why this answer is correct:

1. Protecting Domestic Industries:

Tariffs are often used to shield domestic industries from foreign competition. When foreign goods are subject to tariffs, they become more expensive in the domestic market.

This price increase can make domestically produced goods more attractive to consumers, as they are often available at a lower cost. As a result, domestic industries can maintain or expand their market share, preserve jobs, and ensure the stability of their economies.

2. Revenue Generation:

Tariffs can serve as a source of revenue for the government. When imports are taxed, the government collects revenue from these taxes, which can be used to fund public services, infrastructure development, and other government expenditures.

3. Balance of Payments:

Tariffs can also be used as a tool to manage a country’s balance of payments. By imposing tariffs on specific imports, a country can reduce its trade deficit and enhance its trade balance.

Now, let’s explore why the other options are not correct:

Option B – Only on exports:

Imposing tariffs solely on exports is an unusual and rarely used practice in today’s world. Export tariffs can have negative effects on a country’s ability to sell its products in foreign markets.

They can make the country’s goods more expensive for foreign consumers and can lead to decreased demand for its products, potentially harming domestic industries and the overall economy. Most countries focus on regulating imports to protect their domestic industries rather than hindering their own exports.

Option C – On both imports and exports:

While some countries do impose tariffs on both imports and exports, this is less common and typically used in specific circumstances. These measures are often employed as a part of broader trade policies and agreements.

Generally, when tariffs are imposed on both imports and exports, they aim to regulate trade flows and maintain a balance in international trade relationships. However, it’s essential to note that the most prevalent and standard use of tariffs is to control imports.

Option D – On imports, exports, and non-traded goods:

Tariffs on non-traded goods are an unconventional approach. Non-traded goods usually refer to products or services that are not exchanged internationally or are not subject to international trade.

Imposing tariffs on non-traded goods would have little economic relevance since they do not cross international borders. Countries typically focus their tariff policies on imports and, in rare cases, exports, as previously explained.

In summary, the most common and widely practiced use of tariffs in today’s world is to impose them on imports. This is done to protect domestic industries, generate government revenue, and manage trade imbalances.

While other options, such as tariffs on exports, both imports and exports, or non-traded goods, may be used in specific situations, they are less prevalent and not the primary focus of most countries’ trade policies. Tariffs on imports remain a central tool for regulating international trade and supporting domestic industries in a globalized economy.