Trade glossary · mechanics

Tariff

A tax on imported goods, usually expressed as a percentage of value (ad valorem) or a fixed amount per unit. Used to protect domestic producers or raise revenue.

Tariffs are the oldest trade-policy tool. WTO members commit to bound tariff rates above which they cannot raise duties. Applied tariffs are usually below the bound rate. Average applied tariffs have declined from ~40% in 1947 (pre-GATT) to ~5% today, though specific products can still face very high tariffs (US 25% on light trucks, EU 10% on cars from non-FTA partners).

Examples

  • 2018: US imposed 25% tariffs on $50B of Chinese imports under Section 301.
  • 2022: EU imposed Carbon Border Adjustment Mechanism (CBAM) tariffs on carbon-intensive imports.

Related terms

Quota
A quantity limit on how much of a particular good can be imported or exported in a given period. Often combined with tariffs (tariff-rate quotas).
Most-favoured-nation (MFN)
A WTO principle requiring members to grant any trade concession given to one country to all other members equally, except within registered FTAs.
Free trade agreement (FTA)
A treaty between two or more countries that reduces or eliminates tariffs, quotas, and other trade barriers. Examples: USMCA, EU single market, RCEP, ASEAN.