A tariff is a tax on imported goods. Governments impose them to raise revenue, protect domestic industries, or pressure trading partners. The tariff is paid by the importer, who usually passes part of the cost to consumers. A 25 percent tariff on steel makes imported steel more expensive, which helps domestic steel mills but raises costs for carmakers and builders.

Tariffs have a long history. They were the main source of U.S. government revenue in the 19th century. They protected fledgling industries from British competition. After World War II, countries gradually lowered tariffs through agreements like GATT and the World Trade Organization. Average tariffs fell from around 40 percent in 1947 to under 5 percent today in most developed countries.

That trend has reversed recently. The United States imposed tariffs on Chinese goods starting in 2018, and China retaliated. The European Union has tariffs on steel and aluminum. India protects its agricultural sector. Tariffs are popular with domestic producers and unpopular with consumers and exporters who face retaliation. Economists generally prefer them to be low and predictable, but politics often dictates otherwise.

Tariff types

• Ad valorem: percentage of value
• Specific: fixed amount per unit
• Compound: combination of both
• Protective: shields domestic industry
• Revenue: raises government income