As the European Union considers how to respond to a fresh wave of trade protectionism from US President Donald Trump, attention is once again turning to the role of tariffs. But what exactly are tariffs, how do they operate within the EU, and who ultimately foots the bill?
Tariffs, or customs duties, are taxes levied on goods imported from abroad. They are used by nearly every country and can take different forms. The most common is the “ad valorem” duty—charged as a percentage of the product’s value. The EU also applies “specific” tariffs, which are set as a fixed amount per unit—for example, per kilogram or litre.
According to the CCI-Cepii database, the global average tariff in 2022 was 3.6 per cent, meaning imported goods typically cost 3.6 per cent more than they would domestically. However, this figure masks large variations depending on the country and product sector.
Why Are Tariffs Imposed?
Tariffs primarily serve to protect domestic industries by making imported goods more expensive and helping local producers remain competitive. In many developing nations, they also play a significant role in raising government revenue—some African and island countries generate over 30 per cent of their public funds through such duties.
Tariffs can also be used as tools to control a country’s trade balance by discouraging excessive imports. This approach aligns with the protectionist stance currently seen in US policy.
How Are Tariffs Decided in the EU?
Within the EU’s customs union, all 27 member states apply a common set of customs tariffs to goods entering the bloc. Internal customs duties are abolished, and the common external tariff is decided by the Council of the EU, based on recommendations from the European Commission.
The tariffs vary based on trade agreements and how sensitive a product is considered economically. For instance, essential imports like oil or liquefied gas face minimal duties, as they are not widely produced within the EU. In contrast, agricultural products such as beef and dairy are heavily protected—with tariffs and quotas amounting to between 40 and 60 per cent. This compares with the EU’s overall average tariff of 2.2 per cent in 2022.
Since 2023, the Commission has introduced a system for a “graduated response” to trade threats. According to Yann Ambach, a senior French customs official, this framework would guide the EU’s countermeasures if member states were hit by substantial increases in foreign tariffs.
Who Pays the Tariffs?
In general, it is the EU importer—not the foreign exporter—who pays the customs duties. The cost may then be passed on to consumers, depending on how vital the product is and whether firms are able to raise prices without hurting sales. Businesses also weigh whether they can source the product from a different supplier or export to alternative markets.
How Are Tariffs Collected, and Where Does the Money Go?
Each EU country is responsible for collecting customs duties and must ensure their customs authorities have sufficient resources to carry out proper checks and controls. Ambach notes that the rise in global trade tensions has placed greater importance on monitoring and verifying imports and exports.
Between 2021 and 2027, EU countries retain 25 per cent of the customs duties they collect to cover administrative costs and encourage efficient collection. The remaining 75 per cent is channelled into the EU’s central budget. Overall, customs duties make up around 14 per cent of the EU’s total income.
