tariffs or customs duties are taxes imposed on foreign goods and services. in addition to providing a country with additional revenue, tariffs offer protection to domestic producers. imported items become more expansive, allowing businesses at home to become more competitive with their pricing. for example, a manufacturer in country a can produce computers for $900 each. however, its sales are struggling because a competitor in country b, a developing economy with lower wages, can produce a similar product for only $800. in response, country a imposes a 25% tariff that raises the cost of imported machines to $1,000. most economists warn against excessive tariffs for two main reasons. first, they can lead to a trade war, as foreign governments tend to respond with duties of their own. this effectively closes international markets for domestic companies. critics also argue that tariffs make domestic industries less efficient. with decreased competition form foreign businesses, they have less incentive to find cheaper, better ways of making a product. as a result, consumers pay more than they would if there was a level playing field. in general, tariffs have lost their influence in recent years, with a number of major economies adopting free trade policies with each other. for example, the north american free trade agreement, or nafta, eliminated tariffs on most items traded between the u.s., canada and maxico. the world trade organization plays a key role in making sure that tariff policies are transparent and roughly ?. in addition to helping countries negotiate trade agreements, the organization settles disputes over tariffs and other related matters to ensure fairness.
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