Institute for Government looks at Trade Tariffs

11th March 2025

The election of president Trump has brought tariffs into the news as he has already shown a willingness to use tariffs as an aggressive instrument of policy to achieve both trade and wider policy objectives.

What are tariffs and why do they exist?
Tariffs are taxes charged on the import of goods from foreign countries. While historically tariffs were used as a source of revenue for governments, they are now used mainly to protect domestic industries from foreign competition. They do this by increasing the price of imported goods in order to persuade consumers to purchase domestic products instead.

Who pays tariffs?
In general, the importer pays the tariff. Tariffs are collected by the national customs authority of the country into which the goods are being brought (so tariffs on goods entering the UK are paid to HMRC).

Exporters do not usually ‘pay' the tariff as such ­- rather, they experience adverse effects from their product being made more expensive on the foreign market. This means they may have to cut their prices to remain competitive, for example or move production inside the country to enable them to continue to supply without bearing the tariff.

How are tariffs charged?
Almost all tariffs are set as a percentage of the value of the goods in question. For instance, the current UK tariff on cars is 10% - so if a car imported from outside the UK costs £10,000, the tariff will be £1,000.

Some agricultural tariffs are set in relation to the weight of the product, rather than the value. For example, the UK tariff on butter is £158 per 100kg. So if a UK-based importer were to import a single kilo of butter from a country with whom the UK does not have a free trade agreement, regardless of the price, they would pay a tariff of £1.58.

There are also more complex tariffs that combine a percentage and a per-kilo charge. These apply to highly sensitive agricultural products such as beef. Others still are based on the weight of a specific ingredient used in the product - for example, the tariff on chocolate is based in part on the weight of its sugar content.

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