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What is a Customs Duty?

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Customs duties, or tariffs, are taxes on imports and exports. They serve as a hidden consumption tax that shows up in the cost of goods and services.
The purpose of customs duties is often to create barriers to trade designed to protect local industry. However, in practice other countries typically retaliate for customs duties with duties of their own. As such, duties on one good may protect one industry but end up hurting another. In the worst case, imposition of customs duties can escalate between countries, a phenomena known as a trade war, that damages the economy of both nations and pushes up prices for consumers.
Economic models typically predict that customs duties reduce global economic output. However, efforts to reduce tariffs such as free trade agreements tend to be highly political because they often include terms that restrict the autonomy of national governments.
Overview: Customs Duty
Type
Business Cost
Definition
A tax levied on certain imports and exports.
Related Concepts
Excise Duty

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