What defines an ad valorem tariff on imports?

An ad valorem tariff is specifically defined as a tax imposed on imported goods based on their value. This means that the tariff is calculated as a percentage of the total value of the imported item, which can fluctuate depending on the market price of the good. For example, if the tariff rate is set at 10% and the good imported has a value of $100, the tariff would be $10.

This type of tariff is prevalent because it allows revenue to keep pace with prices; as goods become more expensive, the tariff revenue increases proportionately. In contrast, other types of tariffs, such as specific tariffs, apply a fixed amount per unit rather than based on value. This distinct nature and calculation method are what encapsulate the essence of an ad valorem tariff.