A tariff is an economic concept defined as a tax levied by a government on goods as they cross national boundaries, most commonly on imports. It is also referred to as a customs duty. The concept's origin dates back to ancient times, with examples in Ancient Egypt around 2000 BC and the Roman Empire, where duties were used to generate revenue and control the flow of trade. Tariffs became a key tool during the Age of Mercantilism (16th to 18th century) to encourage exports and discourage imports, and later to protect "infant industries" during the Industrial Revolution.
The mechanism of a tariff works by increasing the price of an imported good, making it less competitive against domestically produced alternatives. The tax is paid by the importer to the customs authority before the product enters the country. Tariffs are typically levied in two main ways: as ad valorem tariffs, which are a percentage of the imported good's value, or as specific tariffs, which are a fixed fee per unit.
This concept is intrinsically connected to the global trade architecture, which began with the General Agreement on Tariffs and Trade (GATT), signed in 1947, to promote trade by reducing tariff barriers. GATT was replaced by the World Trade Organization (WTO), formed on January 1, 1995, which administers the rules for trade in goods (GATT 1994), services, and intellectual property. In India, the legal framework for imposing and collecting these duties is the Customs Act, 1962.
Recently, the use of tariffs has shifted to become a prominent tool in geopolitical strategy. For instance, the US House passed the 'Lindsey O. Graham Sanctioning Russia and Iran Act of 2026', which authorizes the US President to impose tariffs of up to 100% on countries, including India, that continue to purchase Russian oil. This demonstrates a change where tariffs are increasingly wielded as a foreign policy weapon to enforce sanctions and influence the energy security decisions of trading partners.