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In the US, there are thousands of small businesses that contribute substantially to the economy of the nation. If they have tax incentives, these businesses can expand further and provide employment opportunities to hundreds of other either directly or indirectly. These businesses hire people to make, produce or sell their goods or services and indirectly they provide employment to their suppliers who in turn employ people.
However, if the nation introduces high import tax, there will be fewer jobs available. The logic behind this is very simple. If a small business has to pay more to get cheap raw material from another country like China or India, the business’ manufacturing and production costs will increase. However, this business will not be able to proportionately increase its sale price. Therefore, to offset the high import costs, the business will be forced to layoff employees which will result in fewer jobs.
If there are few jobs available, the unemployment rate will gradually increase and people would have less money to spend. On the other hand, other businesses would increase their prices and people would find it difficult to pay for those goods or service. Ultimately high import tax means fewer jobs which, in turn, mean a downturn in the economy.
That is why countries, including the US, are very careful about increasing import taxes on certain goods.
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