Benefits and costs of tariffs

Readers Question what are the benefits and costs of a tariff on consumers, producers and the government?

Tariffs increase the cost of imports, leading to a decline in consumer surplus. For example, UK consumers have lost out from EU wide tariffs on agricultural products. Many agricultural goods are more expensive because of the high tariffs placed to protect EU farmers.

It is hard to think of any benefits from tariffs for consumers. Maybe in the long run consumers benefit from the protection of domestic industries if these industries use the tariffs to improve

Domestic producers, who produce the good, will benefit from the introduction of tariff. This is because it makes their domestic production relatively more attractive compared to the imports. Agricultural tariffs have benefited European farmers as they have been protected from cheaper competition.

However, it is argued that the restriction of competition encourages inefficient firms. Therefore, in the long run, domestic firms may not make the necessary improvements that they would have done without tariffs.

Also the introduction of tariffs usually leads to retaliation. Therefore, other countries will place tariffs on UK exports. Therefore, some exporting firms will lose out and sell less exports.

Tariffs on government

Tariffs will increase government revenue. However, it will be a small percentage of total tax revenue. If the tariff is too high then the UK may no longer import the good, so the government will not get any tariff revenue.

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