IFS Zooms In: The Economy
Do tariffs work?
Jan 23, 2025
Peter Levell, Deputy Research Director at the Institute for Fiscal Studies and a trade economics expert, joins the discussion on the role of tariffs. They explore tariffs as a tax on imports, examining their implications under recent trade policies and their diminishing role in revenue generation. The conversation touches on the complicated trade relationship between the UK and EU, the historical contexts of tariffs, and the balancing act between protecting domestic industries and the benefits of global trade.
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Quick takeaways
- Tariffs, while intended to generate revenue and protect domestic industries, ultimately disrupt trade dynamics and can lead to higher consumer prices.
- Non-tariff barriers, such as customs regulations post-Brexit, significantly impede international trade more than tariffs by increasing compliance costs and complicating imports.
Deep dives
Understanding Tariffs
A tariff is fundamentally a tax imposed on imported goods, which can be structured as a percentage or a fixed amount per unit. Such taxes are currently levied in the UK, primarily on imports from non-trade agreement countries, with the average tariff being around 3%. This revenue generation from tariffs has significantly decreased over the years, mainly due to the rise of free trade agreements that have reduced or eliminated tariffs on many products. The historical context shows that tariffs used to be a more substantial source of government revenue compared to the current scenario.
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