A tariff is a tax imposed on goods and services that are imported from another country. Think of it as an entry fee that a product must pay to cross a nation's border.

Governments use tariffs for two main reasons. The first is to raise revenue. Just like income tax or sales tax, tariffs are a source of money for the government. The second, and more common reason today, is to protect domestic industries. By making foreign goods more expensive, tariffs encourage consumers to buy products made in their own country. This is a form of protectionism, a policy aimed at shielding a country's businesses from foreign competition.

Not all tariffs are created equal. They come in a few different forms, each calculated in a specific way.

This is the most common type of tariff. The Latin phrase ad valorem means "according to value."

This type of tariff is based on a specific amount per unit, such as weight, volume, or number of items. It's straightforward to calculate but doesn't adjust for changes in the product's price.

There is also a third, less common type called a compound tariff, which is simply a combination of an ad valorem and a specific tariff. For example, a tariff on an imported suit might be $5 plus 10% of its value.

Tariffs are one of the oldest tools of economic policy. For centuries, long before income taxes became common, governments relied heavily on tariffs to fund their operations. The Tariff Act of 1789 was one of the very first laws passed by the U.S. Congress, with its primary goal being to generate revenue for the new federal government.

Throughout history, the use of tariffs has shifted. While revenue generation was the main goal in the early days, protecting domestic industries became a more prominent reason in the 19th and 20th centuries. Countries would raise tariffs to shield their young industries from more established foreign competitors.

Today, the use of tariffs is a subject of constant debate among economists and policymakers. They remain a key instrument in international trade negotiations, disputes, and economic strategy.

Understanding these basic concepts is the first step in analyzing how tariffs can affect everything from the price of your phone to the health of the global economy.