A tariff is a tax imposed on goods or services imported from another country. The government of Canada can impose tariffs, also known as duties, based on a percentage of the import’s value. Provinces can also impose tariffs on certain goods, such as beer, wine and tobacco. Understanding tariffs can help give your business a competitive edge in Canadian markets.
How Tariffs Work
The aim of a tariff is to protect domestically produced goods by increasing the cost for foreign businesses to bring items into Canada. A tariff limits free trade and makes foreign products more expensive than comparable domestic ones. A tariff can promote domestic jobs and developing industries within Canada.
For example, say your firm manufactures clothing. Canada imposes an 18% duty on all clothing that comes from countries other than the United States. This allows your company to compete in terms of prices versus clothing from other countries. Suppose you make a T-shirt that sells for $10. A T-shirt made in Vietnam, consisting of the same material and design, normally costs $9. Add the 18% tariff to the Vietnamese-made T-shirt, and the price rises by $1.62. Now, the Vietnamese T-shirt costs $10.62, plus sales tax. Therefore, a tariff can help make your product more competitive in the marketplace and more appealing to consumers.
Understanding Tariffs in the Canadian Economy as a Whole
Governments can impose tariffs to discourage the purchase of a specific product manufactured by multiple countries or to discourage economic activity with a particular country. Tariffs typically result in higher prices for customers because they may increase costs of raw materials such as steel. However, countries that impose tariffs receive tax revenue from them, even if it means higher prices for consumers.
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