What is a trade tariff?
Short answer
A tariff is a tax a government charges on imported goods, usually as a percentage of their value. The importer pays it at the border, and the cost can be passed on to buyers or absorbed by sellers.
Types of tariff
An ad valorem tariff is a percentage of the goods’ value, such as 10% of the invoice price. A specific tariff is a fixed amount per unit, such as a set sum per tonne. Some tariffs combine both. Related measures include quotas, which limit quantities, and anti-dumping or countervailing duties, which respond to goods sold below fair value or to subsidised exports.
Tariff paid = customs value of goods x tariff rateWhy governments use them
Reasons include raising revenue, protecting domestic industries from foreign competition, responding to another country’s trade measures, and using trade access as leverage in negotiations. Critics argue that tariffs raise prices and invite retaliation; supporters point to strategic or employment goals. Economists weigh the effects differently depending on the sector and the policy.
Who actually pays
Legally, the importer of record pays the duty. The economic burden is shared between foreign exporters, domestic importers, businesses and consumers depending on how prices adjust, so it varies by product and market.
The multilateral rules
Members of the World Trade Organization commit to maximum "bound" tariff rates for each product and, under the most-favoured-nation principle, generally must apply the same tariff to all members. Exceptions include free trade agreements and customs unions. Rates are published in national tariff schedules and in the WTO’s tariff data.