Specific Tariff

A tariff specified as an amount of money per unit of good sold. Governments may impose tariffs to raise revenue or to protect domestic industries from foreign competition, since consumers will generally purchase cheaper foreign produced goods. Tariffs can lead to trade wars as exporting countries reciprocate with their own tariffs on imported goods. Organizations such as the World Trade Organization (WTO) exist to combat the use of egregious tariffs.

For example, Company ABC produces cars in Italy and exports the cars, which costs U.S. $1000 per car, to the United States. A 20% ad valorem tariff would require Company ABC to pay the U.S. government U.S. $200 to export the car. A specific tax would involve charging U.S. $300 dollars per car of whether car sold for U.S. $1000 or U.S. $2000 each.