Final answer:
According to endogenous tariff theory, tariffs are imposed because specific industries and their workers benefit and are highly mobilized politically, while the general public incurs small costs and is less politically mobilized. Tariffs serve to protect domestic industries but can lead to market distortions and reduced competition. The WTO works to reduce trade barriers, acknowledging the significant benefits of international trade.
Step-by-step explanation:
According to endogenous tariff theory, countries impose tariffs because specific industries and their workers receive large, easily felt benefits from the tariff and have many highly mobilized politically while the general public and consumers receive small, less easily felt costs from the tariffs and have few highly mobilized politically.
This theory suggests that tariffs serve to protect certain domestic industries by inflating the prices of imported goods, thereby giving a competitive advantage to local manufacturers. The result is that these industries are insulated from foreign competition, which can lead to a variety of market distortions and may favor political over economic efficiency.
Historically, tariffs have been implemented not only for economic protection but also for social and cultural reasons. They have been used to protect emerging local industries and create a more favorable balance of trade. Governments that over-utilize tariffs, however, risk endorsing inefficiencies in domestic industries and hurting consumers, as they may end up paying higher prices for goods.
Additionally, interventions such as tariffs can lead to government corruption and reduced competition. The World Trade Organization (WTO) aims to reduce such barriers to trade, recognizing the large benefits that international trade can bring, particularly to smaller countries.