NABTEB Economics 2013 Theory — Question 18

Model answer

(i) Protection of Infant industries: tariffs can support the growth of emerging ("infant") industries by shielding them from foreign competition during their early stages, giving them a chance to develop and gain competitiveness. (ii) Revenue Generation: tariffs are a major source of revenue; import duties on imported goods generate income that can fund public services and infrastructure projects, or reduce budget deficits. (iii) Correction of Trade Imbalance: countries may impose tariffs to control unfavourable conditions in the balance of trade and payment, discouraging imports and encouraging exports, correcting trade imbalance. (Other acceptable reasons: promotion of national security, and promotion of domestic industries by making imported goods more expensive.)